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By AIDMI Team, India
As climate change intensifies, extreme heat events are becoming more frequent and severe, posing significant risks to human health, agriculture, and economic stability. Parametric insurance has emerged as an innovative financial solution to address these challenges, offering swift and efficient payouts based on predefined temperature thresholds rather than traditional loss assessments.
Parametric heat insurance operates on a simple premise: when temperatures exceed predetermined levels for a specified duration, automatic payouts are triggered. This approach eliminates the need for time-consuming damage assessments and reduces administrative costs, making it particularly attractive for addressing heat-related risks in vulnerable communities.
The effectiveness of parametric insurance in addressing heat risks lies in its ability to provide rapid liquidity when it’s most needed. For instance, in urban areas, funds can be immediately deployed for emergency cooling centres, public health interventions, and support for vulnerable populations. In agricultural contexts, farmers can receive compensation quickly to implement adaptive measures or offset crop losses, maintaining financial stability despite extreme weather events.
Developing countries, which often bear the brunt of climate change impacts, stand to benefit significantly from parametric insurance schemes. These nations frequently lack the financial resources to respond effectively to extreme heat events, and traditional insurance products may be either unavailable or prohibitively expensive. Parametric insurance offers a more accessible alternative, with clear triggers and rapid payouts enabling proactive risk management and enhanced resilience.
Recent implementations have demonstrated the potential of this approach. In India, parametric insurance programs have been piloted to protect communities against various climate risks, including extreme heat. These initiatives have shown promising results in providing timely financial support to affected populations and reducing the economic impact of climate-related events.
The gender dimension of parametric insurance is particularly significant given women’s heightened vulnerability to extreme heat. Research has shown that women face disproportionate risks from rising temperatures due to physiological factors, socioeconomic conditions, and traditional gender roles that often involve outdoor work during peak heat hours. Parametric insurance schemes can be specifically designed to address these gender-specific vulnerabilities by incorporating women’s unique exposure patterns and needs into trigger mechanisms and payout structures. In Fiji, for example, parametric insurance programs have been tailored to protect women’s livelihoods and enhance their adaptive capacity against climate risks.
However, challenges remain in scaling up parametric heat insurance. These include the need for reliable temperature data, appropriate trigger design, and sustainable pricing models. Collaboration between governments, insurers, and international organizations is crucial for overcoming these obstacles and developing effective solutions.
Looking ahead, the integration of advanced weather monitoring systems and climate modelling could further enhance the precision and effectiveness of parametric heat insurance. This, combined with increasing recognition of its value in climate adaptation strategies, suggests a growing role for parametric insurance in addressing extreme heat risks globally.
References:
| Locally Led Actions to Combat the Impacts of Heatwaves
Mihir R. Bhatt and Vishal Pathak, Issue 86 (Article 9), March 18, 2025 This edition of the Humanitarian Exchange, ‘Climate change adaptations in humanitarian programming’, aims to help answer this question by providing some examples of the work that humanitarian organisations are doing in response to the threat of climate change. Co-editors Paul Knox Clarke (Principal at the ADAPT Initiative and an expert on humanitarian system reform) and Mihir R. Bhatt (Director of the All India Disaster Mitigation Institute, or AIDMI) present here a range of articles that encapsulate relevant interventions and learning. The choice of activities, organisations and locations is by no means representative, but the articles here do provide a broad overview of some of the ways that humanitarians are adapting their programming to take climate change considerations into account – and, taken together, they point to a number of emerging trends. A distinct thread runs through the articles in this edition, of very strong community engagement, design and ownership of many of the climate-related programmes. The collection includes several examples of humanitarian agencies working to bring together local knowledge of environmental change and adaptation options with a more scientific understanding of climate change. A particularly interesting approach is that of the All India Disaster Mitigation Institute (AIDMI). Mihir R. Bhatt and Vishal Pathak explain AIDMI’s appreciative inquiry method to help communities (in this case, groups of women farmers) identify and augment ways of making agriculture more resilient to climate change. The AIDMI article also highlights some of the organisation’s work in urban areas to increase resilience to heatwaves – a reminder that climate change is as much an urban as a rural phenomenon. g Read full article: https://odihpn.org/publication/locally-led-actions-to-combat-the-impacts-of-heatwaves/ Read full publication: https://odihpn.org/magazine/climate-change-adaptations-in-humanitarian-programming/ |
