AI promises long-term benefits for insurers despite early gains being modest, according to Moody’s Ratings.

Successful adoption will require substantial investment, and the ratings agency warns tail risks associated with data privacy, cybersecurity and fraud will rise.

Insurers, banks and asset managers have reported “little or no increase” in profits due to AI adoption, but Moody’s says the technology offers cost efficiencies and revenue growth from the industries’ data-intensive business models, large workforces and recurring processes.

AI is delivering gains in underwriting, pricing and claims management, and in capital and reserving analysis. It also promises to lower operating costs and improve underwriting productivity for property and casualty insurers.

Retail P&C distribution is most likely to be disrupted due to its high transaction volumes, routine processes and commoditised offerings.

“The impact on life insurers will be more muted, reflecting their complexity, longer-dated liabilities and stricter conduct requirements,” Moody’s says, noting the industry has been cautious in applying AI to core underwriting and reserving decisions.

By automating routine tasks and improving the speed and accuracy of decision-making, organisations will free up resources to focus on higher-value activities, enhance service quality and time to market, and better tailor products to customer needs.

This will create a reinforcing cycle in which operational improvements support revenue growth, which in turn funds further AI investment and innovation, Moody’s says.