The corporate regulator has called for “safe and responsible” innovation as artificial intelligence changes the way insurance and other financial services are offered.

“We will continue to engage with industry to strike the right balance between protecting consumers, bolstering market integrity and promoting innovation,” Australian Securities and Investments Commission chair Joe Longo said.

“ASIC’s role is to make sure that when innovation happens, it happens safely and responsibly, with the wellbeing of end consumers at the forefront of everyone’s minds. Good regulation is good for consumers – and good for business.”

Mr Longo spoke out as the commission released a report today saying Australia is well placed to handle a surge in financial innovation.

AI and advanced analytics in underwriting and claims is one of three trends driving insurance innovation, according to the report. The others are embedded insurance and parametric products.

The report says embedded cover sold via digital platforms is not simply a distribution trend.

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“It is also a conduct issue, because consumers may purchase insurance when they are focused on another transaction rather than the insurance decision itself,” the Innovation in Financial Technology and Regtech report says.

“For ASIC, the main issues are likely to be distribution in non-financial settings, fairness and explainability in underwriting and claims, and accountability where insurers, platforms and vendors all shape the customer outcome.”

In a five-year outlook, ASIC says embedded and add-on insurance distribution are likely to grow, keeping product design, disclosure timing and customer understanding central to supervision.

Wider use of automated underwriting and claims triage, particularly in high-volume and relatively standardised use cases, is also expected.

“The regulatory issue for ASIC is whether outcomes can be explained and challenged. As automated underwriting and claims handling spread, more explicit expectations on explainability, fairness, documentation and escalation are likely to matter more than the specific tools firms adopt.”