India experiments with parametric insurance to mitigate costs of disasters
Over two decades, between 2000 and 2019, India faced the third most number of natural disaster events in the world. Future prospects are grim – with the frequency and intensity of many natural disasters projected to increase, losses and damages will run into billions of U.S. dollars. State coffers may not have the funds to pay. India is cautiously experimenting with a novel tool to help bridge this finance gap: parametric insurance. Unlike regular insurance schemes which are based on indemnity, or an evaluation of losses post a disaster event, parametric insurance relies on a predetermined set of parameters which, when met, triggers a payout immediately. “There is no survey or lengthy assessment period, which is the main point of difference,” said Pankaj Tomar, India head of Axa Climate, a venture of the AXA Group focussed on creating climate adaptation solutions. Natural disasters mark almost every part of India’s map. According to a report by the Centre for Science and Environment, India saw natural disasters nearly every day in the first nine months of 2022. Between 2019 and 2023, the country faced damages worth $56 billion due to weather related disasters. Finance for disaster management in India typically comes from the National or State Disaster Response Fund (SDRF) and international aid. The National Disaster Management Authority (NDMA) contributes between 75 to 90% of funds from the central government, with the remainder supplied by the state government.
