Insurance Companies Increasingly Look to AI for Growth and Profitability: Morningstar DBRS
Chicago, IL (July 21, 2025) – Morningstar DBRS has released a new report, titled Insurance Companies Increasingly Look to AI for Growth and Profitability, which provides an overview of key areas of insurance value chain that stand to benefit from artificial intelligence (AI) adoption as well as the risks that insurance companies are exposed to with the adoption of AI.
Overview
Investments in artificial intelligence (AI) hold a lot of potential for insurance companies’ growth and profitability but also entail many risks. While machine learning, natural language processing and predictive analytics have long been part of sophisticated insurers’ underwriting models, the adoption of these and other AI-powered technologies has become more widespread and essential to maintaining competitiveness. As a result, according to a survey by Wipro Limited (Wipro), North American insurers have increased the proportion of investment technology (IT) budgets allocated to AI technology to more than 20% in about three to five years, from 8% in the 20241 (Exhibit 1). In this commentary, we provide an overview of key areas of insurance value chain that stand to benefit from AI adoption. We also discuss the risks and challenges of AI adoption, which present an important part of our credit risk analysis, particularly through franchise and risk profile building blocks. Mitigating those risks by having appropriate governance risk structures is key to achieving benefits of AI while upholding the stability of credit ratings.
Key highlights:
- Investments in AI will continue to grow as they hold a lot of potential for insurance companies’ growth and profitability.
- AI provides potential benefits to insurers across the value chain by enhancing operational efficiency, the customer experience, as well as providing support in core functions like underwriting and claims management.
- AI adoption also introduces new risks that, if not managed properly, could cause significant financial as well as reputational damage with negative credit rating implications.
“Ultimately, companies need to invest in AI to stay competitive; however, at the same time, they must not lose sight of the importance of having commensurate risk management frameworks,” said Nadja Dreff, Senior Vice President and Sector Lead, Global Insurance & Pension Ratings at Morningstar DBRS. “From a credit rating perspective, AI can both enhance and damage franchise strength by affecting customer experience. And, while it may improve profitability through efficiency gains, it generally also contributes to higher operational risks, including legal and compliance risk.”
Access the full report from Morningstar DBRS.
About Morningstar DBRS
Morningstar DBRS is a full-service global credit ratings business with approximately 700 employees around the world. We’re a market leader in Canada, and in multiple asset classes across the U.S. and Europe. We rate more than 4,000 issuers and nearly 60,000 securities worldwide, providing independent credit ratings for financial institutions, corporate and sovereign entities, and structured finance products and instruments. Market innovators choose to work with us because of our agility, transparency, and tech-forward approach.
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Source: Morningstar DBRS