New rules require insurance companies to disclose the use of AI in decision-making processes.
Financial services industry outlook key takeaways
Asset managers, exchanges and broker-dealers are targeting individual retail investors more.
Financial institutions assessing CRE-related risk should consider a detailed credit risk review.
Financial services trend #1: Embracing artificial intelligence responsibly in the insurance industry
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Embracing artificial intelligence responsibly in the insurance industry
Embracing artificial intelligence responsibly is becoming increasingly important for insurers.
Prioritizing the responsible use of artificial intelligence allows the insurance industry to navigate complexities, mitigate risks and unlock potential for innovation and growth. AI's rapid transformation of the insurance landscape offers immense opportunities and significant risks, particularly in underwriting, claims processing and customer service.
Addressing biased and discriminatory practices is now a top priority for regulators and industry leaders. For many insurance companies using AI, developing a responsible AI framework will be crucial for maintaining fairness and transparency.
Financial services trend #2: The rise of retail-friendly investment products
The current macroeconomic environment, paired with changing investor preferences, is creating new opportunities for all stakeholders in the investment world. Asset managers, exchanges and broker-dealers are increasingly launching innovative products targeted not only at traditional institutional investors but also at individual retail investors.
For investors, these innovative products, such as retail private equity funds and exchange-traded funds (ETFs) focused on digital wallets, can help meet their changing expectations and growing demand for diversification. For fund managers, such products help penetrate untapped capital pools, expanding their addressable market.
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The rise of retail friendly investment products
Retail-friendly investment products are becoming more popular.
Financial services trend #3: CRE maturities' true exposure for financial institutions
CRE maturities' true exposure for financial institutions
Here’s what commercial real estate maturities’ exposure looks like for financial institutions.
It has been over a year since the commercial real estate debt maturity scare ensued in the wake of several bank failures in March 2023. While CRE losses in 2023 were not nearly as dire as expected, concerns persist as nearly $650 billion of CRE debt is set to mature in 2024. Gross charge-offs for Federal Deposit Insurance Corp. banks increased 66% last year, compared to 2022; even so, CRE represents only 7% of that augmentation—a far cry from the expected crash haunting news headlines for months.
That data raises a question: If the industry was bracing for a crash within the CRE landscape in 2023, but actual CRE charge-offs showed only a modest uptick year over year and remained lower than average over the past decade, then what exposure to CRE deterioration truly exists in the United States, and how detrimental will it be to financial institutions?
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