Why in NEWS
Himachal Pradesh witnessed over 20 flash floods, landslides, and cloudbursts—underscoring rising extreme weather events due to climate change. As India suffers escalating economic losses, parametric insurance is emerging as a faster and smarter climate risk tool.
Key Terms and Concepts
| Term | Explanation |
|---|---|
| Parametric Insurance | Insurance that pays out when a specific parameter (like rainfall or wind speed) crosses a pre-set limit—no physical damage assessment needed. |
| Weather-Related Disaster | Natural calamities triggered or intensified by weather, such as floods, droughts, cloudbursts, or storms. |
| Disaster Risk Reduction (DRR) | Strategies and policies aimed at minimizing vulnerability and losses due to disasters. |
| State Disaster Response Fund (SDRF) | A fund for states in India to respond quickly to disasters, partly funded by the central government. |
Key Data and Insights
| Indicator | Details |
|---|---|
| Climate Disaster Surge | 764 major disasters since 1900; nearly 50% after 2000. |
| Economic Loss | $56 billion in weather-related losses between 2019–2023. |
| Drought Exposure | India’s drought-prone area expanded by 57% since 1997. |
| Rainfall Volatility | 85% rise in extreme rainfall since 2012. |
| GDP Risk | RBI estimates 4.5% GDP risk by 2030 due to heat-induced labour loss. |
| Regional Impact | India faced 25% of all climate-related losses in Asia-Pacific (2019–2023). |
Case Studies
| Region | Use of Parametric Insurance |
|---|---|
| Rajasthan & Uttar Pradesh | Water Balance Index for drought; loans automatically supported. |
| Nagaland | First Indian state to buy multi-year cover for rainfall and landslides. |
| Global Examples | UK, Africa, and Pacific Islands use it for flood, drought, cyclone risks. |
How It Can Be Used in India
| Measure | Description |
|---|---|
| State Disaster Plans | Embed parametric insurance in State Disaster Management strategies. |
| Agriculture & MSMEs | Tailor cover for farmers, renewable energy, transport, and small businesses. |
| Climate-linked Loans | Auto-protected microfinance for smallholder farmers and rural borrowers. |
| Public-Private Models | Partner with tech startups and reinsurers for scalable, real-time models. |
In a nutshell
Memory Code: PRISM
Parametric
Response
Insurance
Speeds
Mitigation
Prelims Practice Questions
- Which of the following best describes parametric insurance?
A. Insurance based on physical verification of loss
B. Insurance triggered by pre-set weather data
C. Insurance only for agriculture
D. Insurance available only via government - Nagaland is associated with which innovation in disaster finance?
A. Cloud-seeding project
B. First parametric insurance for extreme rainfall
C. India’s first carbon trading pilot
D. State-wide drone surveillance for flood - Which sector is not typically associated with parametric insurance use in India?
A. Renewable Energy
B. Transport
C. Real Estate
D. Agriculture
Answer Key (Prelims)
| Q No. | Answer | Explanation |
|---|---|---|
| 1 | B | Parametric insurance pays out based on weather triggers like rainfall or wind speed. |
| 2 | B | Nagaland adopted multi-year parametric cover for extreme rainfall and landslides. |
| 3 | C | Real estate is not a primary sector yet for parametric insurance in India. |
