Over the past few years, climate change has evolved from being a far-off environmental cause to an everyday crisis that impacts India.
This year, the country has witnessed an uneven distribution of rainfall, where some parts of the country saw above average rainfall, whereas some remained parched. This uncertainty of climatic conditions, across the globe has made the need for climate risk insurance, more critical than ever.
The Centre for Science and Environment puts the figure of such disasters at more than 650 in India alone for the year 2024, causing over 3,000 deaths and over ₹60,000 crore worth of economic damage. These are not just statistics; they are homes lost, livelihoods shattered, and local economies turned around. Stronger financial security becomes even more essential with more climate volatility. Climate insurance is no longer a choice but a requirement.
Key products
Below are the key insurance products under climate insurance that are designed to cover different climate-related risks:
- Crop protection: Drought, floods, hailstorms, infestation by pests, and post-harvest losses are all insured under Multi-Peril Crop Insurance (MPCI). India’s flagship programme, the Pradhan Mantri Fasal Bima Yojana (PMFBY), stabilises farmers’ revenues, promotes sustainable agriculture, and offers monetary compensation to farmers when there is crop failure. Crop insurance is a critical protection against climate shocks since over half of India’s population still depends on agriculture.
- Parametric (Index-Based) insurance: Parametric insurance is a fast, efficient method to replace conventional policies. It pays out based on pre-agreed weather parameters like a temperature or precipitation level without determining physical loss. It has also been most helpful to small traders and gig economy labourers who require speedy support. For example, in 2025, vendors in Kolkata used parametric policies to cover themselves against heat waves and rain-driven interruptions. With default pay out processing, this kind of insurance is transparent, timely, and fast-growing projected to grow at a CAGR of 12 per cent by 2034, globally.
- Livelihood protection insurance: Informal and daily wage workers face economic devastation with a single loss of a day’s work during climatic disruptions. Livelihood protection insurance covers earnings lost during climatic disturbances. One of these is the initiative by SEWA and Mahila Housing Trust, which protected over 50,000 women workers in Gujarat, Maharashtra, and Rajasthan from heat waves. Through heavy weather incidents, automatic compensation was delivered to cover home costs during off-days coming in as a buffer where there used to be nothing.
Protecting assets
Property and infrastructure insurance: Urban India is increasingly susceptible to floods, cloudbursts, and cyclones, but many policies of property insurance fail to take into account these risks going up higher every day. Cities like Mumbai, Chennai, and Guwahati have witnessed repeated climate disasters, with locals discovering that damages to their buildings aren’t covered under insurance. New property and infrastructure insurance that takes into account today’s climate reality is needed to insure homes, businesses, and public infrastructure. The premiums for such insurance policies usually start at ₹8,000.
Climate asset insurance: Climate-resilient asset insurance becomes more crucial as more businesses and communities invest in climate-resilient equipment, including solar panels, irrigation systems, and refrigerated warehouses. While such an investment is necessary for adaptation, it remains at risk to climate and climate asset insurance encourages additional adoption and enables resilience building to persist.
Business Interruption Insurance: Business continuity is increasingly disrupted by climate change. SMEs and large companies are at risk, whether a heat wave shuts a shop or floods halt a plant. Counter to such disruption, climate-focused business interruption insurance compensates for lost earnings induced by adverse weather patterns. Such policies, increasingly tailored via climate models and records of disasters, enable faster restoration to business operations and reduce economic downtime.
India’s economy is naturally climate-sensitive. Over 55 per cent of the population is dependent on sectors like agriculture, fisheries, and forestry. Meanwhile, urban infrastructure in general is not robust enough to withstand frequent natural catastrophes. In addition, the effects of climate events no longer remain confined to rural segments. Urban sectors such as manufacturing, logistics, and IT are also affected nowadays by power outages, infrastructure losses, and supply chain breaks. That is why regulators like IRDAI are encouraging the integration of climate risk in underwriting. With smart, equitable insurance solutions, India has the potential to move beyond mere survival through disasters to building real resilience.
The author is Director – Client Advisory Group at Alliance Insurance Brokers.
Published on September 14, 2025
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