Financial institutions and financial service companies in Canada are among the cream of the crop when it comes to innovation and adopting cutting-edge technologies like blockchain, artificial intelligence (AI), Big Data analytics, and quantum computing. The sector’s progress is welcomed by Canadians, the majority of whom (72%) are comfortable with new technologies, like AI, if it means they’ll receive better and more personalized financial services, according to a recent TD Bank Group (TD) survey.
However, new technology inevitably comes with new risk, which is something that 68% of TD survey respondents expressed concerns about. Michael Rhodes, group head, innovation, technology and shared services at TD, commented: “The trust our customers place in us is central to our innovation philosophy, no matter which set of technologies we’re exploring. As the adoption of AI develops and continues across financial services, we believe this is a critical time to advance an industry-wide discussion that moves beyond principles to create world-class services for Canadians in a responsible way.”
The biggest challenge for financial institutions in Canada today is “the pace of change,” according to Mark Morency, senior vice president, financial institutions practice leader, Gallagher in Canada. Speaking to Insurance Business at the RIMS Canada conference in Edmonton, Morency said financial services companies are particularly exposed in how they manage and adopt change.
“The large financial institutions in Canada have done an excellent job of keeping up with innovation and being at the leading edge of technology,” he said. “But when you implement leading edge technology – for example, blockchain – it does mean you’re exposed to different risks. If these risks are unknown, and you’re going in without having a view to what could happen, something could hit you from an unexpected direction.
“I think this is where insurance policy wording and breadth of coverage really comes into play. Linking policies together is also important, whether it’s the cyber policy and the crime policy, or the cyber policy and the directors & officers (D&O) policy, to make sure there aren’t gaps between policy wording. This is also where knowledge and expertise of the broker becomes critical.”
Read more: European Central Bank suffers data breach
As technology evolves and financial institutions look to incorporate things like AI and blockchain into their businesses, the make-up of their daily operations is changing. Financial services firms are starting to need expertise in AI, Big Data, and other emerging technologies, which means they’re outsourcing more of their business and their solutions to niche third-party providers. Therefore, financial institutions are potentially taking on more exposure in their supply chains, especially if the providers they partner with lack appropriate risk management.
“As financial institutions diversify their supply chains, they should be approaching their insurance a bit differently,” Morency told Insurance Business. “Their environment is changing quickly, making their policy wording critical. Is their broker checking that policy wording every year, or just renewing it year-on-year without updating and modernizing it? The other key piece is linking all the various policies. Cyber events today often become D&O events or even property events. This is something insureds and their brokers need to address.
“The pace of technological change is only going to continue. Financial institutions will continue to innovate, and their insurance policies will continue to need to be modernized and updated to keep up with them. Where we differentiate ourselves at Gallagher is really tying the technology practice with the financial institution practice, because being a financial institution is no longer just about taking deposits or managing assets; it’s also about being a technology company.”
