The scheme would undertake a parametric insurance coverage mannequin, the place policyholders obtain a pre-determined payout when particular climate thresholds resembling rainfall, temperature or windspeed are breached.
Ought to the discussions bear fruit, India – among the many nations most liable to excessive climate occasions – might turn out to be one of many first main economies to roll out such a programme.
The transfer would additionally assist the federal government, which now makes use of funds earmarked for disasters to assist states with opposed local weather occasions, rein in prices as insurers can be taking over extra danger.
“We have seen the frequency and severity of opposed local weather occasions go up, and primarily based on that, this dialogue with the federal government additionally began,” Ramaswamy Narayanan, chairperson of state-run reinsurer GIC Re, advised Reuters.
Below a parametric mannequin, payouts could be made in a short time, whereas in conventional insurance coverage, funds are primarily based on the loss sustained and assessments can take years. Parametric insurance coverage will also be used to supply protection in areas the place conventional insurance coverage is uncommon. Federal authorities officers are backing the concept although no formal proposal has been floated but, based on a authorities official. The official and a separate insurance coverage government, each of whom declined to be recognized, additionally stated the discussions are going down. The Nationwide Catastrophe Administration Authority, the finance ministry and GIC Re and different high insurers are exploring protection choices and funding mechanisms, the official added.
The ministry, the catastrophe administration company and India’s insurance coverage regulator IRDAI didn’t instantly reply to Reuters requests for remark.
Curiosity in parametric insurance coverage is on the rise globally. As an example, in 2023, Fiji turned the primary Pacific Island nation to undertake a sovereign parametric insurance coverage coverage, securing protection towards tropical cyclones.
Using monetary devices to mitigate local weather danger can be anticipated to function prominently on the COP30 summit in Brazil this November, a part of United Nations Surroundings Programme’s finance initiative.
SEEKING COVER
India ranks sixth globally in local weather vulnerability, based on the Germanwatch World Local weather Danger Index 2025, which tracked occasions between 1993 and 2022.
Throughout this era, India skilled over 400 excessive climate occasions, leading to a minimum of 80,000 deaths and financial losses of round $180 billion.
Lately, key agricultural states resembling Punjab and Assam have reported crop and livelihood losses as a consequence of flooding, whereas flash floods and landslides in Uttarakhand and Jammu and Kashmir have destroyed houses, roads and bridges.
The federal authorities is contemplating a number of financing choices, together with tapping present catastrophe aid funds or levying small fees on utility payments to fund premiums, based on the federal government official.
“If it aligns with guidelines of city native our bodies, tiny deductions from utility payments could possibly be thought-about, with a consortium of insurers getting into contracts with municipal companies,” the official added.
Separate from federal-level discussions, some states have piloted such schemes and much more are in talks with insurers to safe parametric protection, seven business executives stated.
Final 12 months, a gaggle of fifty,000 self-employed girls in Rajasthan, Gujarat and Maharashtra states obtained $5 payouts when temperatures exceeded 40°C between Might 18 and Might 25.
The tiny northeastern state of Nagaland, which gained India’s first catastrophe danger protection from SBI Basic Insurance coverage in 2024, obtained its first payout of $119,000 in Might after extreme rainfall earlier within the 12 months.
The southern state of Kerala’s co-operative milk advertising federation additionally launched a scheme to guard cattle farmers towards the losses suffered in the summertime when increased temperatures result in decreased milk manufacturing.
“States are a window for medium-term implementation. These conversations are gathering tempo, and each insurance coverage firm is attentive to alternatives,” a senior government at a number one personal insurer stated.
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