The Inclusion–Risk Paradox in FinTech and InsurTech: Effects of Algorithmic Access Expansion, Opacity, and Regulatory Safeguards

Abstract

The rapid diffusion of FinTech and InsurTech has reconfigured the delivery of financial and insurance services through algorithmic decision systems that simultaneously expand access and introduce new forms of institutional risk. While prior studies largely examine financial inclusion or risk in isolation, limited empirical work has investigated their coexistence within a single analytical framework. This study addresses this gap by examining the inclusion–risk paradox in FinTech and InsurTech systems, focusing on the effects of algorithmic access expansion, algorithmic opacity, and regulatory safeguards on financial and insurance inclusion and institutional vulnerability. Anchored in institutional theory and algorithmic governance perspectives, the study employs a quantitative, survey-based research design using data collected from senior banking executives, FinTech leaders, and InsurTech decision-makers in regulated financial institutions in the Philippines. Structural equation modeling is applied to test direct and moderating relationships, with rigorous validity and reliability assessments conducted to ensure measurement robustness. The results indicate that algorithmic access expansion significantly enhances financial and insurance inclusion, while algorithmic opacity increases institutional vulnerability. Regulatory safeguards are found to play a critical moderating role by strengthening inclusion outcomes and attenuating risk amplification. These findings empirically validate the inclusion–risk paradox and contribute to the literature by integrating inclusion and institutional vulnerability within a unified model. The study offers policy-relevant insights for regulators and industry leaders seeking to balance innovation-driven inclusion with institutional resilience in AI-enabled financial systems.