India may introduce climate-linked insurance scheme to simplify relief process, says report — what is it?
India is considering a nationwide climate insurance programme, focused on a parametric model for quick payouts during extreme weather events such as floods. The initiative aims to offset the financial strain on the government.
The Indian government has initiated early-stage talks with local insurers to design a nationwide climate-linked insurance programme, aiming to simplify the financial relief process following extreme weather events such as floods and heatwaves.
The proposed scheme is centred on a parametric insurance model, in which payouts can be made very quickly. The move is also expected to help the central government manage its financial burdens, as insurers would be taking on more of the risk which is currently covered by disaster relief funds, Reuters reported.
India is among the nations most prone to extreme weather events. If the proposed insurance scheme is approved, then it could make India one of the first major economies to roll out such a programme.
How does the parametric model work?
Unlike traditional insurance where claims are based on a detailed assessment of losses, which can often take years, the parametric model is designed to ensure speed and feasibility.
In this model, policyholders receive a pre-determined payout when specific weather thresholds are breached. These thresholds could be specific levels of rainfall, temperature or wind speed.
Parametric insurance is particularly effective in offering coverage in rural and remote areas where traditional insurance is often lacking, and loss assessment is challenging.
Ramaswamy Narayanan, chairperson of state-run reinsurer GIC Re, told Reuters that The National Disaster Management Authority, the finance ministry and GIC Re and other top insurers are currently exploring coverage options and funding mechanisms.
India's climate vulnerability
The push for a national climate insurance programme is critical given India's high susceptibility to climate risks. It ranks sixth globally in climate vulnerability, based on the Germanwatch Global Climate Risk Index 2025.
In the last three decades leading up to 2022, India recorded over 400 extreme weather events, resulting in at least 80,000 fatalities and estimated economic losses of around $180 billion.
States such as Punjab and Assam have faced crop and livelihood losses due to flooding, while flash floods and landslides in Uttarakhand and Jammu and Kashmir have destroyed homes and infrastructure.
Funding the insurance project
The federal government is backing the proposal, though a formal proposal is still under development. It is considering multiple ways to fund the premiums, including tapping existing disaster relief funds or levying small charges on utility bills to fund premiums, according to Reuters.
Several states have already piloted parametric schemes and even more are in talks with insurers to secure more coverage, seven industry executives told the news agency.
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.