Centre considers introducing nationwide climate-linked insurance scheme

Mumbai: The Union government has begun early-stage talks with local insurers about designing a nationwide climate-linked insurance programme aimed at simplifying the payout process after extreme weather events such as heatwaves and floods.

The scheme would adopt a parametric insurance model, where policyholders receive a pre-determined payout when specific weather thresholds such as rainfall, temperature or windspeed are breached.

Should the discussions bear fruit, India - among the nations most prone to extreme weather events - could become one of the first major economies to roll out such a programme.

The move would also help the government, which now uses funds earmarked for disasters to help states with adverse climate events, rein in costs as insurers would be taking on more risk.

"We've seen the frequency and severity of adverse climate events go up, and based on that, this discussion with the government also started," Ramaswamy Narayanan, chairperson of state-run reinsurer GIC Re, told Reuters.

Under a parametric model, payouts can be made very quickly, whereas in traditional insurance, payments are based on the loss sustained and assessments can take years. Parametric insurance can also be used to offer coverage in areas where traditional insurance is rare.

Federal government officials are backing the idea though no formal proposal has been floated yet, according to a government official. The official and a separate insurance executive, both of whom declined to be identified, also said the discussions are taking place.

The National Disaster Management Authority, the finance ministry and GIC Re and other top insurers are exploring coverage options and funding mechanisms, the official added.

The ministry, the disaster management agency and India's insurance regulator IRDAI did not immediately respond to Reuters requests for comment.

Interest in parametric insurance is on the rise globally. For instance, in 2023, Fiji became the first Pacific Island nation to adopt a sovereign parametric insurance policy, securing coverage against tropical cyclones.

The use of financial instruments to mitigate climate risk is also expected to feature prominently at the COP30 summit in Brazil this November, part of United Nations Environment Programme's finance initiative.

Seeking cover

India ranks sixth globally in climate vulnerability, according to the Germanwatch Global Climate Risk Index 2025, which tracked events between 1993 and 2022.

During this period, India experienced over 400 extreme weather events, resulting in at least 80,000 deaths and economic losses of around $180 billion.

In recent years, key agricultural states such as Punjab and Assam have reported crop and livelihood losses due to flooding, while flash floods and landslides in Uttarakhand and Jammu and Kashmir have destroyed homes, roads and bridges.

The federal government is considering multiple financing options, including tapping existing disaster relief funds or levying small charges on utility bills to fund premiums, according to the government official.

"If it aligns with rules of urban local bodies, tiny deductions from utility bills could be considered, with a consortium of insurers entering contracts with municipal corporations," the official added.

Separate from federal-level discussions, some states have piloted such schemes and even more are in talks with insurers to secure parametric coverage, seven industry executives said.

Last year, a group of 50,000 self-employed women in Rajasthan, Gujarat and Maharashtra states received $5 payouts when temperatures exceeded 40°C between May 18 and May 25.

The tiny northeastern state of Nagaland, which gained India's first disaster risk coverage from SBI General Insurance in 2024, received its first payout of $119,000 in May after excessive rainfall earlier in the year.

The southern state of Kerala's co-operative milk marketing federation also introduced a scheme to protect cattle farmers against the losses suffered in the summer when higher temperatures lead to decreased milk production.

"States are looking at a window for medium-term implementation. These conversations are gathering pace, and every insurance company is attentive to opportunities," a senior executive at a leading private insurer said.