High Costs Challenge AI Expansion in Parametric Insurance

The parametric insurance market is developing rapidly as artificial intelligence takes on a growing role in how insurers analyse data, assess risks and design products.

AI is also increasingly being used to determine compensation mechanisms, extending its influence across both the development of insurance coverage and the way payouts are structured.

Parametric insurance links compensation to predefined triggers rather than relying solely on an assessment of actual losses. That makes data analysis particularly important in setting the conditions under which a policy pays out.

High costs are among seven challenges identified for the use of AI in this market. The financial hurdle highlights a tension between the technology’s expanding role and the resources needed to put it into practice.