Wherever there is an automation, in ESAs opinion human intervention is supposedly limited or missing. But human intervention always plays a role in automated processes as its conception relies on some form of human interaction notably by choosing the questions to ask to the consumer during the process. Moreover as for France, the consumer mostly has the option throughout the process to contact the provider/intermediary if he/she wishes to do so. In this way in-depth, thorough exchange is done. We consider it to be a good practice to have a human adviser available to consumers at any point during the process should they want or need it. Greater recognition should therefore be given to the positive role human intervention can play in automated processes.
A distinction has to be made between well-developed algorithms that generate personalised recommendations that match consumers’ needs and demands on one side and tools that provides the consumer with quote or price on the basis of several basic information, on the other side. In this sense, we consider that the example given on page 13 in the case of motor insurance is not appropriate. The information required from the consumer (such as car registration, license type, no claims discount, area vehicle kept), are mainly to allow insurance undertakings to price the risk and deliver a quote. As for us these information alone cannot be used to identify the consumer’s needs and thereby to deliver a personal recommendation.
In the same sense, we consider that comparison websites providing a selection of products based on a number of basic questions are not to be considered as offering a personalized advice (page 14). However it must be recalled that comparison websites are from now on under IDD definition of distributors and submitted, as a consequence, to IDD rules including the provision of advice when Member States make it mandatory.
As to ESAs, advice is seen from a consumer’s perspective and in a broader sense not limited to a narrow “definition” of advice under a particular EU legislation, as to insurance products, in the Insurance Distribution Directive. We do not support this large and subjective definition of advice as this would result to a different treatment between “face to face” and automated advisors. We believe it is important to use legally robust definitions to avoid uncertainty and subjective interpretations of when advice is provided. The discussion of advice should therefore be aligned with the definitions of advice provided under financial services legislation.
There are different forms of automated tools going from simple questionnaire based on yes/no decision tree replies to more sophisticated tools based on scoring taking into account all responses in a more interactive way and as a whole in order to give the most suitable product even by combining several products. The efficiency of these automated tools depends on the complexity of the product and consumer’s profile.
Anyway, it must be pointed out that automated advice tool that delivers personal recommendation can be used whatever the contract is subscribed online or not.
As to pensions, specific tools exist enabling the consumer to obtain a review of its personal situation but they imply a good comprehension and expertise of the legal framework in terms of pension regime. These tools are not always adapted to complex personal situations. As for savings, tools dedicated to wealth management allow financial matured consumers to organize their savings but these tools do no always provide advice and warnings for taking a decision.
The first barrier is the legal framework and regulators’ interpretation. Just to recall, the new Insurance Distribution Directive is setting up paper requirement by default. The rigid requirement conditions set up for websites (consumer’s information and prior consent) will create barriers and impede companies of using automated tools.
Secondly, the consumer’s personal situation (less or more complex) and the level of its maturity should be taken into account when developing automated financial advice tools in all sectors. Thereby, automated financial advice for complex products seems to be more suitable for well-informed consumers, like ESAs said “generally aimed at internet-minded consumers and at consumers who already have an expertise in the financial sector of the product in question”.
Other barriers to come could be up-front financial costs involved in creating and implementing sophisticated automated advice tools.
It must be acknowledged that automated tools could drive consumers to be more proactive and thus involved in the subscription process. It is also true that automated tools provide benefits particularly in terms of accessibility of services. We do believe that automated advice can be a solution for easily understandable and easily assessed products. For more complex products or situations, we consider more prudent at this stage to reserve automated advice to more educated, “internet-minded” and “financially matured” consumers, either because they are familiar with the product or because they already purchased it before.
In France where mandatory advice exists, costs are shared within all clients so that automated advice will not lead to reduce consumers’ costs for advice significantly. The situation explained by ESAs – not wealthy enough to consult, and pay a financial advisor- do not fit the French market but it is specific to other markets which may lead to advice gap. As to uneducated consumers, we recall our reply that automated advice may not be suitable for all type of products or situations and that, in any case, consumers ‘financial maturity should be taken into account.
In the same sense, we do not believe that consumers receive more consistent advice when they use automated tools (“quality of service”). Like acknowledged by ESAs (points 50 to 56) help from human advisor during the process and opportunity to ask questions and clarify options is likely to enable consumers to choose the most suitable product.
Setting up a dematerialized relation with the client including automated advice allows a high level of traceability of the subscription process and so enables to make sure that the subscription process sequencing is consistent and that information have been effectively delivered to consumers.
Financial costs may be reduced over time. But it must be acknowledged that IT developments comprising a real study and analysis on how to obtain the necessary consumers’ demands and needs, do ask for financial commitments that are not to be overlooked notably given the always existing possibility to contact a human advisor.
While automation can overwhelm certain risks related to human error, it may also provoke some other risks linked to consumer’s behaviour (like not understanding that some supplementary information may be relevant for the assessment, misinterpret its own risk profile/appetite or misunderstand differences between risk profile/appetite …).
As for insurance, automated tools will give a “secure” advice to situations for which an intervention of a specialist is not justified. In this way insurance undertakings will be able to concentrate human advice to the more complex situations.
A number of the risks cited are relevant to advice in general and are not specifically related to automated advice.
As to outputs resulting of biased in the tool for example, they could in fact exist but it is important to recall that the IDD requirements such as to act in accordance with the best interests of customers will apply in any case. These rules are applicable whenever advice is provided on automated basis or not.
Similarly, IDD gives rules as to information about the distributor itself and about the complaint / mediation procedures. These rules also will apply to the automated advice.
Complex personal situations can be easily identified at earlier stage with automated tools so as to allow a warning to the consumers that these tools may not be adapted to them and that they will better ask for a human advisor. In the same way, complex products such as unit linked insurance based investment products are not per se incompatible with automated advice provided that the process is sophisticated enough and the consumer well-informed.
As to insurance undertakings, described risks are common to the use of any IT system and are already dealt in Solvency 2 requirements providing for a risk-management system: “Insurance and reinsurance undertakings shall have in place an effective risk-management system comprising strategies, processes and reporting procedures” (Article 44 Solvency 2 Directive). Also, in France, information and advice traceability is an existing requirement already put in place by all concerned actors, undertakings or intermediaries. This traceability could even more be facilitated by good IT tools (to create and maintain a storage capacity and audit trail).
Providing information and advice on line allows the consumer to storage information and to have access to the documents when necessary. The current legal framework represents a risk because it is not adapted to this evolution.
Insurance sector in France has an underdeveloped online sale even if online sale is currently growing in a significant way. However the development of automated advice implies that European and national law shall be reviewed.
Strict legal obligation as to information, advice, provision of pre-contractual and contractual information on paper regardless the distribution channel used (online, on smartphones or tablets or “face to face”) for one thing and the inability to establish the electronic signature as to legal conditions for another thing (asking for qualified certification, proof of invoice authenticity and integrity, control and storage) lead in majority of cases insurance distributors to favor face to face advice.
Besides, we do not consider the distinction between life and non- life insurance as relevant. Thanks to sophisticated tools that allow consistent and in depth process, misselling risk can be avoided and automated process can be stopped while giving the consumer the opportunity of having access to a human adviser.
Use of automated tools will progressively grow in all markets notably because the young people, being more used to it, will ask for its generalisation. The automated process will thus have to adapt to this digitalization not on only at the beginning of the relation but equally during the product entire cycle life taking into account the evolution of the consumer’s personal situation and demands and needs. But even with this growing automation, human advice may be a better solution in certain circumstances (complex personal situation, consumer’s level of maturity) or because some consumers may simply prefer it. Also, automation could only be possible if European and national legislators take into account the growing digitalisation.
Finally, we question the objective of this consultation as well as the need to create a new framework while having a legal new framework to come with Insurance Distribution Directive which will provide for rules applicable whenever advice is provided, regardless if it is automated or not and so for all actors involved in a distribution activity regardless the distribution channel used.
In this context, specific rules on automated” financial advice are not necessary and will rise a question of articulation/contradiction of this specific framework (of unknown legal value as ESAs are yet to decide “which, if any, regulatory and/or supervisory actions may be needed”) with legal texts as IDD. This would not be consistent with the European Commission’s willingness to avoid overlaps, duplications and inconsistencies in the financial services regulation."