Climate change is a systemic risk that demands a systemic response. As first responders to disasters, insurers must shift their mindset from viewing climate as a hazard to seeing it as a call to innovate
Rakesh Jain, CEO, Reliance General Insurance
India, with its vast and diverse geography, ranks among the most climate vulnerable nations globally.
In recent years, climate change has shifted from being a distant environmental issue to a pressing economic and financial threat, particularly for the insurance sector.
Once predictable seasonal cycles such as the monsoon have become increasingly erratic, disrupting agriculture, damaging infrastructure, and displacing communities.
Flash floods in Himachal Pradesh, landslides in Uttarakhand, cloudbursts in the Northeast, and urban deluges in cities like Mumbai and Bengaluru are stark reminders of how climate-linked disasters are intensifying.
These events have caused significant insured and uninsured losses, forcing Indian insurers to reconsider how they model risks, price policies, and manage exposure.
Over the last decade, India has experienced climate-related losses exceeding $120 billion. With recurring disasters placing a heavy strain on claim payouts, insurers have gradually started adapting their strategies.
Although progress has been slow, several Indian general insurers are beginning to incorporate climate risk into their underwriting frameworks. Companies are increasingly turning to advanced analytics, satellite imagery, and geo-mapping tools to assess exposure, particularly in flood- or drought-prone districts.
Crop and property insurance policies are now being customized at the district level to reflect local climate vulnerabilities. Some insurers have also piloted weather-indexed and parametric insurance products that enable faster, more transparent payouts based on predetermined triggers, such as excessive rainfall or extreme heat.
In one such initiative, payouts were triggered for over 50,000 low-income women in Gujarat, Rajasthan, and Maharashtra when temperatures exceeded 40°C.
In agriculture, the impact of climate risk is already clear through schemes like the Pradhan Mantri Fasal Bima Yojana (PMFBY), where claims due to unseasonal rains or droughts have surged.
This has prompted greater interest in parametric insurance policies that are not based on actual loss assessments but rather on pre-defined climate thresholds.
Reinsurance firms, who provide crucial risk buffers for Indian insurers, are also stepping in by insisting on improved climate disclosures and resilience modeling. Many global reinsurers now require Indian firms to align with ESG (Environmental, Social, and Governance) frameworks before they agree to share climate-sensitive risk portfolios.
Despite these promising moves, several challenges stay. Climate risks are still underpriced in most insurance products, often due to market competition or regulatory caps that limit premium increases.
As a result, insurers face unsustainable loss ratios in high-risk zones.
Insurance penetration remains critically low in climate-sensitive segments such as informal housing, small-scale agriculture, and micro-enterprises. There is a strong need to scale up micro-insurance and index-based models that can serve these vulnerable populations efficiently. Products designed with simple structures and faster payouts can provide a vital safety net for communities that are currently unprotected.
Regulators like the Insurance Regulatory and Development Authority of India (IRDAI) have a significant role to play. Climate stress testing should become a regular part of insurers’ risk management activities.
Additionally, mandatory climate-related disclosures and ESG compliance can push the industry to become more transparent and accountable. The IRDAI is also exploring regulatory sandboxes and green insurance frameworks that support innovation in climate-resilient insurance.
Public-private partnerships like the NDMA’s(National Disaster Management Authority) initiative to pilot parametric flood and cyclone coverage could pave the way for more universal disaster protection.
Climate change is a systemic risk that demands a systemic response. As first responders to disasters, insurers must shift their mindset from viewing climate as a hazard to seeing it as a call to innovate.
Indian insurers have a unique opportunity to lead the transformation by developing climate-smart products, forging partnerships with governments and tech providers, and driving investments into green infrastructure. The pace of adaptation will decide not only their relevance in an increasingly uncertain world but also the resilience of millions of people who rely on them for protection.
With the right incentives, tools, and vision, India’s insurance industry can become a key force in building long-term climate resilience.