Govt Mulls Nationwide Climate-Linked Insurance Scheme Using Parametric Model

India may soon see a fundamental shift in how it manages losses from extreme weather events. The government has begun preliminary talks with local insurers to design a nationwide climate-linked insurance programme that promises faster, more transparent payouts after natural calamities such as heatwaves and floods.

The proposed scheme, according to a Reuters report, would be built on a parametric insurance model, a structure where compensation is triggered automatically once specific weather parameters, such as temperature, rainfall, or windspeed, cross pre-set thresholds.

This kind of insurance eliminates the lengthy period of damage assessments, which now directly affects people worldwide. It ensures that individuals who are directly affected by climate change can receive instant financial relief once the trigger conditions are met.

If implemented, India, which is one of the most climate-vulnerable nations globally, could become one of the first major economies to launch such a national programme.

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

The National Disaster Management Authority, the finance ministry, GIC Re, and several top insurers are said to be exploring coverage options and funding mechanisms.

India ranks sixth globally in climate vulnerability, as per the Germanwatch Global Climate Risk Index 2025, having faced over 400 extreme weather events between 1993 and 2022. These caused at least 80,000 deaths and economic losses of roughly $180 billion.

In recent years, floods in Punjab and southern parts of the country, flash floods in Uttarakhand, and landslides in Jammu & Kashmir and Himachal Pradesh have proved how quickly disasters can upend lives and livelihoods. The central government currently relies heavily on disaster relief funds for such situations, but shifting part of that burden to insurers could offer a more sustainable solution.

However, some states and private groups have already experimented with this idea in India. Last year, 50,000 self-employed women across Rajasthan, Gujarat, and Maharashtra received automatic $5 payouts when temperatures exceeded 40°C for several days.

Nagaland’s disaster risk coverage, secured through SBI General Insurance, saw its first payout of about $119,000 earlier this year after excessive rainfall. Kerala’s dairy cooperative has also piloted a scheme that compensates cattle farmers when heat reduces milk production.

These early experiments mirror the success of smaller, targeted parametric schemes already operating in India. As reported in an earlier Outlook Money story, “Parametric Insurance: How Migrant Workers and Solar Firms Are Benefiting From Trigger-Based Insurance” such covers have started reshaping climate risk management across sectors.

Solar firms in Rajasthan and Gujarat now use irradiance-linked policies that ensure steady cash flows even when output drops due to cloudy conditions. 

Meanwhile, many migrant workers in heatwave-prone cities like Noida and Lucknow are covered under affordable temperature-triggered insurance plans. When temperatures crossed 42°C for five consecutive days this summer (in May), they automatically received payouts wherein no forms, no waiting was required.

This climate-linked coverage, which comes under ‘Parametric Insurance’ works on this structure:

• Payouts here are linked to objective data metrics from trusted (and often official) sources like the Indian Meteorological Department and remove the need for claim verification or loss surveys.

• The focus on not how much damage occurred but whether the ‘climate event’ which triggered the insurance happened.

Nations across the globe are increasingly adopting such models, for instance Fiji became the first Pacific Island nation to adopt a sovereign parametric insurance policy in 2023. Under this coverage the country offers coverage against tropical cyclones, a climate event that often severely affects its citizens.

As per Reuters’ report, the topic of climate-linked insurance coverage is also expected to gain visibility at the COP30 climate summit in Brazil later this year, as part of the UN Environment Programme’s finance discussions.