RIDERS OF THE STORM

As extreme weather events rise, the demand for parametric insurance is growing among companies looking to hedge against climate-related risk in their portfolios. How successful will this be?

-  RICHA SHARMA

A SOLAR FARM owner in Rajasthan placed a big bet on harnessing the sun with a lump sum investment. However, as the unpredictability of the climate would have it, in 2023, the state received low sunshine on several days, resulting in the underperformance of the farm owner’s million dollar firm.

To clear the clouds over his returns, he opted for a parametric cover and now receives payout on A low sunshine days.

He’s not alone. There has been growing interest in parametric insurance among renewable energy players, including investors and lenders looking for protection against weather events like low sunshine and poor wind availability, which are uninsurable in the traditional market.

Parametric cover provides financial stability, especially at a time when weather patterns have been fluctuating due to climate change.

Pankaj Tomar, Head of India at consulting firm AXA Climate, says renewable energy is one area that is picking up very fast in terms of parametric insurance in India.

“Certain parts of India have witnessed diminishing wind and solar radiation due to climate change, which is likely to impact the country’s ambitious clean energy plans. Stakeholders will need to protect their investments and parametric insurance is clearly a viable solution,” Tomar tells BT.

All major insurance and re-insurance players have been offering parametric products for solar and wind power projects. For the first time, a product has been devised for a big hydroelectric project in Uttarakhand, hedging against risk from floods and earthquakes.

This comes at a time when lenders and investors of renewable energy assets are getting concerned about profitability.