Cyclone, quake or landslide? There's a new insurance product on way.

The Centre has engaged its top disaster management agency to carve out an insurance product to mitigate the impact of losses from climate change-related events. The move comes in the backdrop of increasing frequency of such extreme events in the country, with large segments of populations in disaster-prone areas unable to cope.

Two persons aware of the matter said on condition of anonymity that the National Disaster Management Authority (NDMA) has constituted a working group called Committee on Disaster Risk Reduction (CoDRR), with the department of financial service as a member, to develop a ‘single-peril parametric insurance’ product for the Indian market.

A single-peril parametric insurance policy pays out a fixed amount against loss of life or property if a specific event occurs, including cyclones, floods, earthquakes, or even excessive heat, cold or rainfall. The payment is based on the magnitude (parameter) of the event, and not the actual losses.

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Once the framework for the insurance is finalised, the Centre would ask insurance companies to design products, especially for economically vulnerable groups in disaster-prone areas, the first person cited above said.

This person added that, if necessary, the Centre would subsidise the premium to make it affordable for vulnerable groups in disaster-prone areas. States would also be roped in to financially support launch of such products, which may otherwise become expensive due to high reinsurance costs for the insurers.

“The insurance sector supports catastrophic insurance, which requires collaboration between the government, insurers, reinsurers, and regulators,” the second person cited above said. “While discussions are ongoing, specific solutions like subsidized premiums and specialized insurance businesses are under consideration.”

“The prime requirement for launching such an insurance product is setting up a ‘catastrophe fund’,” said an official of General Insurance (GI) Council on condition of anonymity. “Though this was provided under regulations earlier, the idea has not taken off due to no support from both government and the insurers. Without it, such products would become prohibitively expensive.”

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Questions sent to the finance ministry and insurance regulator (Irdai) remained unanswered till press time.

A parliamentary standing committee has also recommended insurance cover for extreme weather events, suggesting that India has been ranked third, after the US and China, in recording the highest number of natural disasters since 1900.

The impact of rising instances of climate change-related natural disasters in the country is significant. The Economic Survey of 2025 said India’s GDP stands to fall by 3-10% annually due to extreme weather events, rising sea levels, water insecurity, and disruptions to agriculture.

Industry reactions

The insurance industry has lauded the move. “In India, we see at least three to four major natcat (natural catastrophic) events every year,” said Arti Mulik, chief technical officer at Universal Sompo General Insurance. “These events have adverse effect on large uninsured population.”

Mulik said a parametric insurance cover is an apt product to meet the requirements of this needy segment in disaster-prone areas. “This product also facilitates easy, hassle-free claim settlement, and provides financial support,” she added.

Deepak Madan, vice-president of special lines/commercial lines for large account practices at Prudent Insurance Brokers, said India’s growing vulnerability to natural disasters makes calamity insurance not just essential but a strategic necessity.

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“While coverage for natural catastrophes is widely available, the real challenge lies in sustaining these solutions over time as losses continue to rise,” said Madan. “The focus must shift towards ensuring long-term viability rather than just accessibility and affordability.”

“To enhance financial resilience amid climate uncertainties, the insurance industry must develop scalable solutions with robust risk assessments and innovative models that can withstand the pressures of increasing losses,” he added.

What else is in the works

Apart from considering new products to insure loss of property in disaster-prone areas, the finance ministry has also asked states to mandate home insurance for home buyers, particularly in disaster-prone areas, through respective RERAs (real estate regulatory authorities).

The standing committee on finance has also suggested the need for a specialized insurance business to be set up by one of the public-sector general insurance companies with subsidized premiums for disaster-prone areas.

Such insurance businesses have been established in many other areas, such as Florida in the US, which is subject to regular hurricane damage.

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Similarly, the government may need to consider how to provide insurance for projects that have to deal with extreme weather such as glacial lake outbursts. This happened recently to the Teesta III dam in Sikkim. These additional insurance products will require extensive consultation with general insurance companies, reinsurers, and enterprises that are facing such risks, the committee has said in its report submitted in Parliament in December.