Parametric Insurance A Solution for Climatic Uncertainty, say Experts

New Delhi: With the changing climatic conditions, be it extreme hot or cold or similar unprecedented situation in flood and cyclone, a unique climate resilient solution — parametric cover for daily wagers, mostly for the women workers, are on the rise in India. The parametric cover, the first of its kind in the world, protects their income against the extreme climate like rising heat waves in summer, unbearable cold in winter and the flood-affected surroundings in rural belts.

Keeping such unprecedented climatic conditions in view, global non-governmental organisation (NGO) Climate Resilience for All (CRA) along with its Indian peer Self-Employed Women’s Association (SEWA) joined hands with a common cause for the unique solution, delving deeply into the disproportionate effects of extreme climate on women’s health and their income as well. Not only NGOs, the government in consultation with insurers is also learnt to have initiated parametric insurance pools for the enhanced disaster protection. Unlike conventional insurance schemes, which solely depend on indemnity and post-disaster loss evaluations, parametric insurance operates on predefined parameters that trigger immediate payouts. “In northern India, where severe cold waves affect agriculture, livestock, and human health, parametric insurance could be used to provide coverage based on temperature thresholds. This approach is particularly crucial in a country like India, which experiences natural disasters quite frequently,” said a senior government official.

Indian insurers, however, feel that the possibility of using parametric insurance to cover risks from severe cold or floods in India is quite feasible and potentially effective, given the country’s vulnerability to climate-related disasters. “Parametric insurance can be tailored to address these risks, offering a faster and more efficient mechanism for payout, particularly in regions where extreme weather events are becoming more frequent,” said Sharad Mathur, MD & CEO, Universal Sompo GI.

As per the CRA, women labourers are particularly vulnerable to extreme heat during the intense summer months, which can adversely affect their health. While avoiding exposure to high temperatures can prevent health issues, it also results in a loss of daily wages. “Last year, 21,000 female workers of SEWA were provided with the innovative heat cover out of its total of 2.9 million members. This year the number has gone up to 50,000 and CRA and SEWA jointly pay the premium on behalf of these women,” the CRA said.

“Using parametric insurance, combined with other financial and protective interventions, can make a huge positive difference as women in the informal sector struggle to meet daily needs when extreme heat or cold profoundly harms their health and ability to earn. Our ambition is to scale the WCS India programme to eventually reach all SEWA’s 3 million members. We will also continue to build WCS for other south Asian countries, in Thailand, and other Southeast Asia countries, and in West and East Africa,” said Kathy Baughman-McLeod, CEO of CRA.

As per the parametric cover, the beneficiary gets a cash layer of upto Rs 1,800, depending the extremity of weather conditions. A cash amount of Rs 400 is paid to the beneficiary when the day’s temperature goes as high as 40 degree Celsius. Once the temperature crosses 43 degree Celsius, the women beneficiaries get payout in the range between Rs 535 and Rs 1,800 depending on the severity of the heat. Reinsurer Swiss Re, which has been building parametric solutions for vulnerable populations and communities for decades in partnership with governments and civil society, and ICICI Lombard, which is a longstanding Indian insurer familiar with parametric cover, came along for this innovative product to protect women workers’ income in some way or the other.

“In May 2023, ICICI Lombard, in collaboration with Swiss Re, first launched a parametric-based weather insurance policy covering high-heat events for 50,000 women labourers associated with SEWA across 22 districts in Gujarat, Rajasthan, and Maharashtra,” said Reema Nanavaty, director of SEWA. When asked about payment of insurance premium amount, Ms Nanavaty said that poor marginal workers don’t want any charity; hence, the premium was partly paid by members and was partly from philanthropic funding. “We recognise their vulnerability and stand committed to building their resilience. Our interventions, such as parametric climate insurance and the climate resilient landscape finance (or CLRF), are tailored to address both their immediate needs and long-term recovery,” she said.