Can parametric insurance protect India’s most vulnerable from climate risks?

For the country’s informal workforce, parametric cover is a start, but it is not a long-term solution 

Anjuben Jhala, a 24-year-old vegetable farmer in Khori village, Gujarat, felt helpless when she lost all her crops to extreme heat, which was a major source of income for her family. 

India is experiencing alarming heatwaves for the fifth consecutive year, with temperatures reaching a scorching 51.9˚C. The informal sector is bearing the brunt of this crisis. 

“It has been half a decade since we have been experiencing a rise in unprecedented heat, and for the past couple of years, the same heat has started to affect our crops,” said Jhala. 

Jhala’s story is becoming increasingly common across India.  In 2020, Gujarat, among other states like Bihar, Telangana, Andhra Pradesh, Jharkhand, and West Bengal, opted out of Pradhan Mantri Fasal Bima Yojana (PMFBY) citing financial risks and high premiums charged by insurers in 2020, according to the Ministry of Agriculture and Farmer’s Welfare. 

“The unavailability of insurance for crops for the farmers had put them in a helpless situation as not only were they losing out on crop to heat, it was also a financial burden for most of these families,” Megha Desai, Senior Coordinator of the Self-Employed Women’s Association (SEWA), said.

As climate extremes intensify worldwide, traditional insurance models are struggling to keep up. In the US, insurers are pulling out of high-risk areas hit by wildfires and floods, leaving communities stranded. In India, where millions in the informal sector face mounting losses from heatwaves and erratic weather, the question is whether parametric insurance can evolve to meet the moment—and offer vulnerable populations a safety net in an increasingly unpredictable climate.

Parametric insurance as a response 

In 2023, SEWA launched a parametric insurance scheme to protect farmers from heat and climate risks. Unlike traditional insurance, which compensates for actual loss, parametric insurance pays a fixed amount when a predefined event—such as high temperature—occurs. Under SEWA’s plan, members paid a premium of ₹1,019, and if their crop failed due to daily high temperatures, the sum insured to the farmers was ₹7,600. This year, SEWA added cyclones and floods to the list of covered events, along with the heat. Each member paid a premium of ₹705, with the sum insured to the farmer being ₹3,121. 

Meenaben Khokar, a beneficiary of this insurance, shared that the high temperatures had also impacted her livestock. She explained, “Most of the fodder we provide to animals turns hot, which is not good for them at all.”

Desai explained, “We rely on the India Meteorological Department [IMD] for weather predictions and try to frame the insurance policy based on those predictions.” However, many experts stress the need for better weather data.

The limits of government-run parametric schemes

While the government does offer some parametric insurance under PMFBY based on weather indices, delays in payouts and bureaucratic hurdles have eroded trust among farming communities. Currently, only Nagaland and SEWA actively offer such insurance for agriculture and informal sector workers.

While there is no bank in India that is directly involved in parametric insurance, major insurance companies, some of which are backed by major banks, are the main providers. These entities are State Bank of India General Insurance Company, which is working to provide this to Nagaland, Bajaj Allianz General Insurance which is offering ‘Climate safe’ parametric insurance cover, Future Generali India Insurance Company, New India Assurance Company.  

Yet government participation remains constrained. “The major issue the government faces is budgetary constraints, which can hinder the budget allocation for disaster management funds,” said Suranjali Tandon, who is an associate professor at the National Institute of Public Finance and Policy. “One way to get around it will be a public-private partnership, which will be fruitful in a model like this.” 

Currently, disaster management funding comes from the national or state level funds, in which the National Disaster Management Authority (NDMA) contributes 75% of the State Disaster Relief Fund (SDRF), with the rest coming from state budgets. 

Weather data needs to be hyperlocal

While IMD forecasts for events like heavy rainfall have improved, heat data still lacks local granularity. “Data provided by the IMD should be calibrated properly, and data sets should also be available at every taluka level for the proper observation of heat,” said Dr M Rajeevan, who is a former secretary of the Ministry of Earth Sciences and has also worked in the IMD.

The changing climate is also making historical weather data increasingly unreliable. “Insurers are no longer looking at the historical data as they are not reliable anymore because the frequency of extreme heat, temperature, and rainfall has been changing and it is no longer useful for them,” said Pankaj Tomar, India lead for AXA Climate.

Instead, insurers now depend on real-time climate models, Tomar said. “For instance, for extreme heat, the threshold can be 45˚C for five consecutive days for a person to get a payout from the insurance companies.”

What the future holds 

For women like Meenaben and Anjuben, it doesn’t cover all the losses, but it offers a vital short-term safety net during extreme heat days. In 2025, SEWA had over 250,000 beneficiaries and has a positive outlook for what the future holds for parametric insurance. “We aim to cover all the women who are working with us in India along with those working in the informal sector in other countries,” said Desai.  

Experts believe the potential of parameters insurance goes beyond farming. Kirti Prasanna Mishra, Co-founder of Ecociate, said that parametric insurance can also be incorporated in different aspects of people’s lives, such as the changes in the livestock and for the workers under National Rural Employment Guarantee Act (NREGA).

As climate extremes are increasingly impacting agriculture throughout the country, parameteric insurance is emerging as a promising tool for resilience. By enabling faster, event-based payouts without cumbersome loss assessments, it provides timely relief. But experts caution it’s only one piece of the puzzle. While it helps navigate the immediate shock, long-term structural solutions still remain the need of the hour. 

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Paridhi Choudhary

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