Financial institutions, including insurers, won’t see the same boost to profitability that the software, semiconductors, and energy sectors will.
It is almost two years since Chat GTP became part of our collective consciousness. At the time, it popularized a simmering vague concept for in-the-know engineers and tech nerds into something tangible and easily understood.
Anyone could type an innocent prompt, and hit return, generating an answer right before their eyes.
Deep Impact - Maybe
It was a redemptive step that in one fell swoop seemed to liberate computers, smartphones, and tablets from the purgatory of endless social media doomscrolling, making private devices feel marginally useful for the first time in years.
Many voices at the time, finews.asia included, predicted a gut-wrenching, unforgiving impact on the finance industry, as poetry-writing chatbots laid waste to clumsy internal legacy bank processes and captive workers trapped inside the monochromatic internal IT-Microsoft Office-email-spreadsheet industrial complex.
Incremental Gains
But the truth might not be as exciting as all that, as a recently released graphic by Visual Capitalist indicates.
Sourcing data from the Bank of American Institute (BoAI), the visualization’s creator indicates that margins in banking and insurance will increase only incrementally over the next five years because of AI.
Not All That Much
The way the BoAI forecast works is that a 5 percent improvement from AI would result in an operating margin increase from 20 percent to 21 percent at the end of the five-year timeframe.
For banking and insurance, the strategists and analysts predicted an improvement of 1.2 percent for the latter and 1.1 percent for the latter. For a model bank theoretically running at a 20 percent operating margin, that essentially means 20 plus not all that much more.
Cyber Insurance
A look at the BoA’s actual note reveals a deafening silence when it comes to the finance sector, apart from the fact that AI consulting generated $300 million for Accenture in 2023, while insurance companies are potentially in a position to generate incremental revenue streams by using AI tools for cyber insurance products.
Other industries will see far deeper impacts, with software expected to see a 5.2 percent positive impact over the next five years, followed by semiconductors (4.8 percent) and energy (3.1).
Prepare for the Unexpected
In fact, banking ranked only 18th of all the industries measured, followed by insurance, itself just above the food and beverage and household products sectors. Still, the authors asked readers to prepare for unforeseen surprises.
«GenAI-driven disruption will take time, but will likely occur far more rapidly than past technologies and investors anticipate, indicating that upside is unlikely to be fully priced in across the AI investment stack. Upside may also emerge where it’s not expected,» they wrote.
Misplaced Fears
That clearly gives the operational functions, finance, and risk and control functions a measure of consolation between the wider finance sector’s periodic redundancy exercises.
Much of their current fears about AI may even be misplaced given that most don’t even know what it is or what it does, as findings from Gallup indicate.
Scant Number of Workers
The former renowned US research and polling organization, which has since managed to transform itself into a marketing research and management consultant developing performance metrics for business, says that employees use AI at work currently.
According to them, only 1 in 10 use AI and a weekly basis and almost 7 in 10 never use it at all.
Not Here, Not There
That is a sharp contrast to the statistic they reported that shows that 93 percent of Fortune 500 human resource heads say that their companies have already begun using AI tools and tech in business.
«However, most workers remain unaware of these efforts. Only a third (33%) of all U.S. employees say their organization has begun integrating AI into their business practices, with the highest percentage in white-collar industries (44%),» Gallup indicates.
Declining Adoption Rates
In fact, according to them, the number of employees prepared to use AI for work dropped by six percentage points between 2023 and 2024, adding «it may be a sign that leaders are talking more about AI without providing clear support or direction, leaving employees worried they will be left behind».
That kind of approach is something that sounds all too familiar to the financial industry.
Process Change
Given what we know now that, it might be an opportune time for banking executives to convene much-needed task forces to review all those internal policies and procedures, and see where AI fits in.
After that, they can take steps of their overhauled suite of processes by disseminating them widely to the relevant employees with neatly labeled sets of Powerpoints – and go from there. It might end up improving margins more than expected - and quietening an always uncertain, even queasy, workforce at the same time.
