Fitch Ratings says the mortgage and title insurance sectors are likely to face limited business disruption risks due to artificial intelligence over the next five years.

The global ratings firm on Monday released the results of an AI stress test it performed across its rated issuers in four broad sectors including corporates, infrastructure, financial institutions and structured finance.

Three adverse scenarios were identified related to rapid AI development in its broad-based review: business model disruption, overinvestment risk and asset impairment. The examination considered the impact of each adverse scenario over a five-year horizon on applicable ratings criteria for firms in the four key sectors.

The stress test resulted in Fitch assigning sector scores from 0 to 100 at 20-point intervals. A score of 40 implies “some pressure” on the sector “sufficient to warrant a negative outlook” that carries the possibility of “an eventual one-notch downgrade.” A score of 60 indicates “notable downward pressure” leading to one or two downgrades.

Among financial institutions under Fitch’s ratings umbrella, business disruption fueled by AI developments presented the largest risk to those companies, compared to the other adverse scenarios.

Those risks could include “disintermediation, commoditization of services or intensified competition from AI-native entrants,” explained Fitch, which can manifest “in the erosion of competitive positions and pressure on revenues or margins.”

“In this scenario, AI is deployed at a relatively fast pace, including for tasks that were previously thought of as being too complex or error-prone for AI,” read Fitch’s commentary.

The fast rate of AI adoption assumed under that scenario would leave incumbents with limited runway to adapt their businesses, while at the same time previous safeguards would be eroded, such as “barriers to entry and high-switching costs.”

However, Fitch assessed that key mortgage-related sectors face limited vulnerability to business disruption risks posed by AI. The mortgage industry lags other financial services sectors in AI adoption, surveys show.

The mortgage insurance sector was assigned a score of 20 in the stress test, suggesting “minor credit pressure” related to AI developments over the next five years. That indicates Fitch does not anticipate needing to downgrade sector credit ratings for AI-related reasons over that time horizon.

According to the report, mortgage insurers have primarily deployed AI to “automate the evaluation of borrower creditworthiness, property valuation and mortgage portfolio risk,” in addition to streamlining operational processes like document review.

“The possession of deep underwriting databases, established regulatory frameworks and strong lender relationships remain key structural features that protect mortgage insurers from rapid AI-driven disruption,” the report said.

Title insurers, which benefit from a high degree of concentration and institutional support akin to mortgage insurers, also received a score of 20.

“The possession and ongoing investment in proprietary title plants is a key structural feature that protects title insurers from rapid AI-driven disruption,” said Fitch, while noting that AI has the potential to “enhance efficiency and risk management” as the “value of historical, proprietary data” remains a competitive advantage and barrier to new entrants.

Across both sectors, cybersecurity threats and data privacy concerns were cited as key risks to business disruption, however. Though mortgage and title insurers were assessed as having limited exposure to AI-vulnerable sectors through their investments and underwriting, macroeconomic and counterparty risks amplify their systemic exposure.

Residential mortgages as an asset class, which were stress-tested under Fitch’s structured finance category, were assigned a score of 0.

The commentary noted that mortgage originators are “positively exposed to AI,” with advancements yielding enhancements in “underwriting, closing times and quality control checks.” Fitch also said that mortgage borrowers “may also be positively exposed as consumers use AI to better manage their finances.”