India Considers Nationwide Climate-Linked Insurance Scheme To Address Extreme Weather Events

India is exploring the possibility of introducing a nationwide climate-linked insurance scheme. This initiative aims to simplify payouts after extreme weather events like floods and heatwaves. The proposed model, known as parametric insurance, provides pre-set payouts when specific weather conditions are met, such as certain levels of rainfall or temperature.

The government has initiated preliminary discussions with local insurers to design this programme. If successful, India could be among the first major economies to implement such a scheme. This move would help manage costs by transferring more risk to insurers, reducing the financial burden on disaster funds.

Parametric Insurance Model

Unlike traditional insurance, which requires lengthy assessments of losses, parametric insurance offers quick payouts. It is particularly useful in areas where conventional coverage is scarce. The National Disaster Management Authority and other key agencies are currently exploring funding mechanisms and coverage options for this model.

Globally, interest in parametric insurance is growing. In 2023, Fiji became the first Pacific Island nation to adopt a sovereign parametric policy against tropical cyclones. Such financial tools are expected to be highlighted at the upcoming COP30 summit in Brazil.

India's Climate Vulnerability

According to the Germanwatch Global Climate Risk Index 2025, India ranks sixth in climate vulnerability. Between 1993 and 2022, the country faced over 400 extreme weather events, causing at least 80,000 deaths and $180 billion in economic losses.

States like Punjab and Assam have suffered agricultural losses due to flooding. Meanwhile, flash floods and landslides have wreaked havoc in Uttarakhand and Jammu and Kashmir, damaging infrastructure and homes.

Piloting State-Level Schemes

Some Indian states have already piloted parametric schemes or are negotiating with insurers for coverage. For instance, last year saw self-employed women in Rajasthan, Gujarat, and Maharashtra receiving payouts when temperatures exceeded 40°C.

Nagaland received its first payout from SBI General Insurance after excessive rainfall in early 2024. Kerala's milk marketing federation also launched a scheme to protect cattle farmers from losses due to high temperatures affecting milk production.

Funding Options Under Consideration

The federal government is considering various financing strategies for this initiative. Options include using existing disaster relief funds or adding small charges to utility bills to cover premiums. A consortium of insurers might enter contracts with municipal corporations if it aligns with urban local body regulations.

A senior executive from a leading private insurer noted that states are looking at medium-term implementation windows for these schemes. Discussions are progressing rapidly as every insurance company remains alert to potential opportunities.

"We've seen the frequency and severity of adverse climate events go up," said Ramaswamy Narayanan, former chairperson of GIC Re who retired recently but was involved in discussions.

The finance ministry and India's insurance regulator IRDAI have yet to comment on these developments. However, federal officials support the idea despite no formal proposal being presented yet.