Brace for risk repricing as insurers face climate claims

Climate effects are expected to accelerate and transform the risk models of the insurance business

- SOUMYA SARKAR

The climate emergency is no longer a distant threat on actuarial spreadsheets. It is reshaping how insurers calculate risk, fix prices and design products. Insurance, once built on the assumption that yesterday's weather is a fair guide to tomorrow's, is being forced to acknowledge that the past no longer reliably predicts the future. For Indian businesses, this change matters greatly. The insurance industry is not just a financial service; it is a barometer of risk. When premiums rise or coverage shrinks, it signals where vulnerabilities are mounting. While GST relief on some policies may aid personal insurance penetration, climate stress demands attention.

Five sectors in India are the most exposed. Agriculture is the most vulnerable. Farmers endure whiplash between floods and droughts, hailstorms and cyclones. According to district-level climate risk assessments, India's flagship crop insurance scheme has struggled to keep pace with the volatility. Insurers are testing simpler designs such as parametric covers, where payouts are automatic when rainfall or temperatures breach a threshold, avoiding delays and disputes.

Urban housing and infrastructure have become increasingly fragile as construction spreads into flood-plains and low-lying zones. The World Bank has noted that heavy rainfall, waterlogging and heat stress are straining Indian cities. Insurers are responding by raising premiums in risky locations, excluding flood coverage and insisting on higher building standards.