The scheme would undertake a parametric insurance coverage mannequin, the place policyholders obtain a pre-determined payout when particular climate thresholds equivalent to rainfall, temperature or windspeed are breached.
Ought to the discussions bear fruit, India – among the many nations most vulnerable to excessive climate occasions – may turn into 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 adversarial local weather occasions, rein in prices as insurers can be taking over extra danger.
“We have seen the frequency and severity of adversarial 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, informed Reuters.
Below a parametric mannequin, payouts will 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 can be used to supply protection in areas the place conventional insurance coverage is uncommon. Federal authorities officers are backing the thought although no formal proposal has been floated but, in line with a authorities official. The official and a separate insurance coverage government, each of whom declined to be recognized, additionally stated the discussions are happening. 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 illustration, in 2023, Fiji turned the primary Pacific Island nation to undertake a sovereign parametric insurance coverage coverage, securing protection towards tropical cyclones.
The usage of monetary devices to mitigate local weather danger can also be anticipated to function prominently on the COP30 summit in Brazil this November, a part of United Nations Setting Programme's finance initiative.
SEEKING COVER
India ranks sixth globally in local weather vulnerability, in line with 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 not less than 80,000 deaths and financial losses of round $180 billion.
In recent times, key agricultural states equivalent to Punjab and Assam have reported crop and livelihood losses resulting from flooding, whereas flash floods and landslides in Uttarakhand and Jammu and Kashmir have destroyed properties, roads and bridges.
The federal authorities is contemplating a number of financing choices, together with tapping current catastrophe aid funds or levying small costs on utility payments to fund premiums, in line with the federal government official.
“If it aligns with guidelines of city native our bodies, tiny deductions from utility payments might be thought-about, with a consortium of insurers coming into contracts with municipal firms,” 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 Could 18 and Could 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 Could after extreme rainfall earlier within the 12 months.
The southern state of Kerala's co-operative milk advertising and marketing federation additionally launched a scheme to guard cattle farmers towards the losses suffered in the summertime when greater 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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