Role of AI/ML in Parametric Insurance

Parametric insurance is an innovative form of insurance that uses technology to ensure quick payouts stated Bahaa Abdul Hussein. This form of insurance is dependent on data to ensure adequate risk coverage. This is where technologies like Artificial Intelligence (AI) and Machine Learning (ML) can be helpful. We explore the role AI and ML plays in parametric insurance.

AI and ML in parametric insurance

Parametric insurance has a different mechanism of operation. Unlike in traditional insurance, there is no requirement for an assessment of losses/damages before processing a claim. Instead, an event-trigger approach is used. Here is how it works: When a pre-defined event occurs, the occurrence is verified quickly. Immediately on verification, payout is done. This process drastically enhances the speed at which payout is done. It also makes the claim process more customer friendly.

The insurer needs data for underwriting as well as for claims processing. Robust processes are needed to ensure proper assessment of risk. AI and ML can help in this. Here’s how it works:

  • AI and ML can carry out advanced processes of data. Data sets can be examined thoroughly and analyzed. The results can be used for accurate risk assessment. The higher the accuracy of risk assessment, the better is the price that can be offered for customers.
  • The key concept in parametric insurance is event triggers. The triggers are based on real-time events (eg: occurrence of an earthquake). There would be multiple sources of data used for this. It could vary from satellite images to reports from weather stations. All this data needs to be processes at real-time for the trigger to take place. AI can do this efficiently.
  • For effective underwriting, it is important to be able to predict the occurrence of trigger events. Predictive analytics is a technology that uses AI and ML. AI can use data to predict if an event would occur. This data can then be used to decide the price for insurance coverage.
  • The claims process is automated in parametric insurance. AI can do this efficiently saving in costs for the insurer while ensuring convenience and a great experience for customers.
  • AI can help in detecting frauds, which is a major problem that leads to losses for insurers.


AI and ML are being used in many fields, including insurance. In parametric insurance, these technologies help in ensuring efficiency in the entire insurance operations. They ensure an enhanced customer experience benefiting the policyholder. The blog has been authored by Bahaa Abdul Hussein and has been published by the editorial board of Fintek Diary. For more information, please visit

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