By Malay Kumar Poddar, MD, InRisk Labs, India

The impacts of climate change are increasingly severe in India, with extreme temperatures, more frequent heatwaves, and unpredictable rainfall patterns stressing both communities and industries. Traditional insurance models are often slow to adapt to these rapid changes, but parametric insurance offers a faster, more efficient solution. By using predefined triggers—such as temperature, rainfall, or wind speed—parametric insurance ensures quicker payouts, providing essential financial relief to those affected by climate risks. As India continues to face the escalating consequences of climate change, parametric insurance is proving to be an effective tool for protecting vulnerable sectors like agriculture, disaster management, energy, and supply chain & logistics.

InRisk Labs has been at the forefront of designing and implementing parametric insurance solutions tailored to India’s climate challenges. Focusing on index insurance for climate risks, our products offer comprehensive protection against unpredictable weather patterns. With real-time loss monitoring and data-driven frameworks, we improve risk management and expedite claims processes, helping insurers and reinsurers respond swiftly during crises.

The Heat Index: Capturing Extreme Heat Risk

One of the most pressing climate risks in India is extreme heat. The insurance industry has responded with innovative parametric products launched in recent years addressing risks like reduced crop yields, reduced dairy productivity, poultry mortality, and loss of livelihood. However, effective parametric insurance must go beyond simple temperature triggers. The heat index, which combines temperature and humidity, offers a more accurate measure of how heat is experienced, especially in densely populated urban areas and agricultural regions where workers face the brunt of extreme heat. In northern India, loo winds—hot, dry winds—add another layer of complexity. These winds raise temperatures and strain economic activities.

Mitigating Basis Risk with Reliable Data

Another critical challenge in parametric insurance is basis risk—when insurance payouts don’t match actual losses, which usually happens due to inconsistencies in measuring weather data. We reduce basis risk by relying on robust data from sources like the Indian Meteorological Department (IMD), the European Centre for Medium-Range Weather Forecasts (ECMWF), and NASA. These high-resolution datasets ensure our parametric triggers reflect actual conditions, minimising discrepancies and enhancing product credibility.

Custom Product Designs for Diverse Needs

Finally, parametric insurance solutions need to meet the unique needs of different sectors to accurately reflect the real-world losses. For urban areas, where the urban heat island effect raises temperatures, our products use lower heat index thresholds to ensure timely relief. In agriculture, where extreme heat devastates crops and livestock, we design products that trigger payouts after consecutive days of extreme heat, providing farmers with immediate financial assistance to mitigate losses. For occupational risks—such as outdoor workers in construction and agriculture—we design products that factor in the ability of human body to cool itself, ensuring payouts reflect real working conditions and protect worker safety.

The recently launched Shrimp Parametric Weather Insurance Cover provides coverage to Shrimp farmers against extreme temperatures and temperature fluctuations that can cause health stress to Shrimp crops leading to reduced growth, higher susceptibility to diseases, and even mass mortality.

Building a Resilient Future

As climate change accelerates, the need for fast, reliable insurance products grows. At InRisk Labs, we are committed to advancing parametric insurance by focusing on accurate data, reducing basis risk, and customising solutions to protect vulnerable communities and industries from the financial impact of climate risks. Our continued innovation aims to create a more resilient future for those most affected by climate change.

Disclaimer: The views expressed in this piece are those of the author/s and do not necessarily reflect the views or policies of AIDMI.