I think it is essential to write in paragraphs. It will help structure your answers into their differing points much more clearly for the examiner and it will be an easier read.
Also, writing in paragraphs will help you structure your answer. If you give each point its own paragraph, you'll focus on it more. Not writing in paragraphs will make you more susceptible to waffling.
You'll probably lose some marks if you don't write in paragraphs.