Published on: 29th November 2025
AUTHORED BY: ARCHEE SAMAIYA
KLE SOCIETY’S LAW COLLEGE, BANGALORE
Abstract
Climate change has intensified the frequency and severity of natural calamities in India, pushing traditional disaster-relief mechanisms beyond their capacity. In 2025, India beganexploring climate-linked or parametric insurance as a new approach to climate resilience and risk management. Unlike conventional indemnity-based policies, these insurance instruments release payouts once a pre-determined environmental parameter—such as rainfall, temperature, or wind velocity—is triggered.
This article examines the emergence of climate-linked insurance within India’s legal and regulatory landscape. It analyses the relevant statutory framework, the evolving regulatory role of the Insurance Regulatory and Development Authority of India (IRDAI), and the need for coordination with the National Disaster Management Authority (NDMA). The discussion also situates this shift within the broader constitutional ethos of equality, social justice, and the right to life under Article 21. The paper concludes that India’s climate-insurance policy revolution in 2025 can only succeed if it is grounded in robust legal design, transparent regulation, and inclusive access for vulnerable communities.
Keywords
Climate-linked insurance; Parametric insurance; Disaster-risk law; IRDAI; National, Disaster Management Act; Legal reform; Climate resilience; Social justice; India; Sustainable policy; Financial adaptation; Public-private partnerships.
Introduction
India’s vulnerability to climate-related disasters has become increasingly evident over the past three decades. Floods, cyclones, droughts, and prolonged heatwaves have inflicted massive economic losses and pushed millions into poverty. According to the Global Climate Risk Index 2025, India recorded more than 400 extreme weather events between 1993 and 2023, resulting in over 80,000 deaths and cumulative losses exceeding USD 180 billion.
- Traditionally, the government’s response to such crises has relied on ex post disaster relief, involving ad hoc compensation and budget reallocations. These methods are slow and oftenReuters, India Considers Introducing Nationwide Climate-Linked Insurance Scheme (Oct. 6, 2025). inadequate. Recognising this, the Union government and IRDAI began discussions in 2025 to
introduce climate-linked insurance schemes that could automatically release payouts based on
measurable environmental triggers.
This initiative represents a decisive policy shift—from reactive compensation to proactive risk financing. The article explores the legal foundations for this transition, identifies regulatory gaps, and assesses the implications for constitutional rights, administrative law, and social equity. Legal and Regulatory Background
2.1. Insurance Act, 1938
The Insurance Act, 1938 governs the Indian insurance sector. Drafted in a pre-climate era, it primarily envisions indemnity contracts where claims depend on proof of loss. Parametric or index-based products, however, pay out upon event occurrence rather than quantified damage. To accommodate these models, statutory interpretation or amendments are necessary. Definitions under Sections 2 and 64-VB could be widened to include “event-based” contracts. The Act’s provisions on solvency, reinsurance, and claims handling should also adapt to handle basis risk—situations where losses occur without meeting trigger thresholds or vice versa.
2.2. Role of IRDAI
The Insurance Regulatory and Development Authority of India (IRDAI), created under the 1999 Act, has increasingly prioritised climate-risk governance. In 2023, it formed a Climate Risk Committee to assess climate disclosures and resilience within insurers’ portfolios. Under the proposed 2025 framework, IRDAI must craft specific regulations defining acceptable triggers (temperature, rainfall, wind speed), data sources (IMD, ISRO), and consumer-protection rules. Standardised disclosure requirements and grievance-redress mechanisms will be vital to ensure transparency and fairness in payout decisions.
2.3. Disaster-Management Framework
The National Disaster Management Act, 2005 (NDMA) remains India’s principal statute on disaster mitigation and relief. Sections 46 and 47 establish national funds for response and mitigation, but these primarily operate after a disaster occurs. Climate-linked insurance could be embedded within the NDMA regime to enable pre-disaster
financial preparedness. Such integration would move India closer to the objectives of the Sendai Business Standard, Govt Considers Introducing Nationwide Climate-Linked Insurance Scheme (Oct. 6, 2025).
MF, India: Financial Sector Assessment – Climate Risk Governance and Disclosure (2025)Framework for Disaster Risk Reduction (2015–2030), which encourages risk-transfer mechanisms
as part of national adaptation strategies.
2.4. Global and Comparative Context
Several jurisdictions offer valuable lessons: The Caribbean Catastrophe Risk Insurance Facility (CCRIF) provides sovereign insurance against hurricanes and earthquakes.
The African Risk Capacity (ARC) uses satellite data to trigger drought payouts across member nations.
In Southeast Asia, Fiji’s Cyclone Insurance Program applies a similar index-based design for small-scale farmers. India’s approach must align with international principles of transparency, accountability, and inclusiveness. Incorporating these best practices will enhance public trust and regulatory
credibility. The Parametric Insurance Model
3. Concept
Parametric insurance works through measurable, objective data rather than traditional loss verification. Once a predetermined parameter crosses a threshold—say, rainfall below 50 mm or temperature above 40 °C—the payout is triggered automatically.
3.1. Advantages
Speed: Rapid payouts help affected populations recover quickly.
Clarity: Objective thresholds reduce subjective interpretation and disputes.
Fiscal Stability: It shifts some disaster-related financial risks from the government to insurers and
reinsurers.
Scalability: A single index can cover large geographic regions, making administration efficient.
3.3. Challenges
Despite its promise, several concerns persist:
– Basis risk, where actual damages differ from modelled estimates.
– Data reliability from meteorological or satellite sources.
– Affordability, especially for low-income populations.
4. Legal certainty, since traditional laws may not recognise trigger-based payouts as enforceable insurance contracts. To address these, IRDAI must ensure data integrity, define standard contract clauses, and establish consumer-friendly dispute-resolution pathways. Early Indian Experiences and Pilot Programs India has experimented with smaller climate-insurance pilots that illustrate both promise and
difficulty. In 2024, a partnership between the Self-Employed Women’s Association (SEWA), Swiss Re, and ICICI Lombard launched a heat-indexed policy covering over 50,000 female workers in
Gujarat, Rajasthan, and Maharashtra. When the Indian Meteorological Department (IMD) recorded temperatures above 40 °C for three consecutive days, beneficiaries automatically received compensation through digital payment systems.
A similar innovation emerged through the Saral Krishi Bima Scheme in Kerala, providing heat and rainfall protection for dairy farmers. Payouts were linked to weather deviations affecting fodder
production. In urban India, private insurers in Kolkata introduced short-term “climate comfort” policies in 2025, covering extremes of temperature and precipitation based on IMD data. These pilots demonstrate operational feasibility but also highlight issues of affordability, regulatory recognition, and public awareness. Scaling them nationally requires explicit statutory backing and integration with disaster-management systems.
Constitutional and Administrative Dimensions
5.1. Fundamental Rights and Climate Resilience
The constitutional underpinning for climate-linked insurance arises primarily from Articles 14 and 21. The Supreme Court has repeatedly held that the right to life includes the right to a safe environment.
In M.C. Mehta v. Union of India (1987)7 and Subhash Kumar v. State of Bihar (1991)8, the Court recognised environmental protection as essential to dignity and livelihood. Disaster-risk reduction, therefore, becomes a constitutional duty. By institutionalising insurance, the State discharges its positive obligation to safeguard life and equality. Moreover, Article 38 of the Directive Principles requires the State to promote social justice—an ethos that supports subsidised insurance for disadvantaged citizens.
5.2. Administrative Accountability
The introduction of nationwide parametric insurance necessitates transparent administrative frameworks. Decision-making on triggers, payouts, and beneficiary lists must be subject to oversight. Establishing a Climate Insurance Ombudsman under IRDAI would help resolve consumer grievances efficiently. Administrative fairness also demands that all trigger data, methodologies, and payout records
remain open to audit by independent bodies, ensuring procedural integrity and minimizing corruption risks.
5.3. Equity and Social Justice
Legal scholars emphasise that climate risk disproportionately burdens those least able to bear it— small farmers, informal workers, women, and coastal communities. Without redistributive mechanisms, insurance may widen inequality. Equity requires tiered premiums, State co-funding, and community participation. Local self-help groups or cooperatives can act as intermediaries to aggregate demand and spread risk. Subsidised coverage can be justified under the constitutional mandate of welfare and equality.
Policy Reform Proposals
India’s legal framework must evolve rapidly to sustain climate-linked insurance on a national scale. The following reforms are recommended:
6.1. A Dedicated Climate-Risk Insurance Statute
A Climate-Risk Insurance Act, 2025 should explicitly define climate-linked products, specify permissible hazards, and authorise IRDAI to approve, regulate, and monitor such schemes. The statute should create a National Climate-Insurance Fund to subsidise premiums for vulnerable groups.
6.2. Regulatory Guidelines
IRDAI should issue comprehensive rules governing: product approval and disclosure requirements; approved data providers and methodologies; minimum transparency standards; and timelines for payouts and appeals. These guidelines would ensure uniformity across public and private insurers.
6.3. Integration with NDMA Framework
Legal amendments should formally integrate climate-linked insurance into NDMA disaster management plans. Pre-disaster financing through insurance should complement the National Disaster Response Fund, reducing fiscal unpredictability.
6.4. Public–Private–Community Partnerships
Collaborative models involving government, private insurers, and civil-society organisations can help achieve scalability. Community groups such as SEWA can assist in awareness campaigns,
claim facilitation, and local monitoring.
6.5. Data Governance and Transparency
Trigger reliability depends on accurate data. Laws should mandate certified weather stations, open data publication, and independent audits. Establishing a National Repository for Climate Data could unify IMD, ISRO, and private sensor outputs under a transparent digital interface.
6.6. Affordability and Inclusion
Statutory subsidies, concessional premiums, or tax incentives should ensure participation by low income populations. The government might also explore integrating climate insurance with welfare schemes like PM-Kisan or Ayushman Bharat, thereby mainstreaming coverage within existing social-security programs.
6.7. Dispute-Resolution Mechanisms
Specialised tribunals or ombudsmen should handle disputes swiftly. Judicial review under Article 226 must remain available to prevent arbitrary administrative action or wrongful denial of benefits.
6.8. International Cooperation
India could join a regional insurance pools modelled on CCRIF or ARC. Accessing global climate
finance facilities—such as the Loss and Damage Fund established at COP 28—would strengthen
fiscal capacity for premium subsidies and reinsurance support.
Conclusion
The emergence of climate-linked insurance marks a significant turning point in India’s approach to disaster management. The 2025 initiative seeks to institutionalise resilience through predictable, rule-based payouts rather than discretionary relief. For this revolution to succeed, three principles must guide policy design: legal clarity, social inclusiveness, and regulatory transparency. The scheme must embed constitutional values—dignity, equality, and social justice—within its operational framework. If enacted thoughtfully, climate-linked insurance can transform India’s response to environmental crises, making it faster, fairer, and fiscally sustainable. It will also signal to the world that India views climate adaptation not merely as an environmental challenge but as a constitutional and
human-rights imperative
References
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2025).
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5.Reuters, Extreme Heat Triggers Novel Payout for 50,000 Women in India (June 12,
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8.M.C. Mehta v. Union of India, AIR 1987 SC 965.
9.Subhash Kumar v. State of Bihar, (1991) 1 SCC 598.
