Fitch AI stress test sees moderate disruption risk for insurers, higher for retail carriers

Insurers face a moderate risk of business disruption from AI over the next five years, Fitch Ratings says, Insurance Asia reports. In its AI stress test, Fitch assigned a business disruption score of 20 out of 100 to all insurance sub-sectors, indicating a limited potential impact on credit ratings under an adverse scenario.

Fitch said regulatory requirements, established distribution networks and access to policyholder data help protect insurers' credit profiles, and that complex products and capital requirements could make it harder for technology firms to enter the market. Retail insurers face greater disruption risks than commercial insurers because their products are generally more standardised and consumer preferences can change more quickly.

Reinsurers are less exposed to AI reducing the role of intermediaries in distribution, but AI could create challenges for modelling and pricing risks. New and changing correlations between risks may be difficult to identify using historical data and traditional methods, which could lead to inaccurate pricing, weaker reserving and unwanted exposures.

The stress test assessed credit exposure across corporate, financial institution, infrastructure and structured finance sectors over five years under three adverse scenarios: over investment, asset impairment and business disruption.