It’s time for proactive climate insurance

FLOODS in Punjab, Himachal Pradesh, Jammu & Kashmir, Uttarakhand and Haryana are not "freak" events. They show that climate change is the reality for millions of people. The loss of lives, destruction of crops, damage to infrastructure and mass displacement over the past few weeks tell a grim truth: government policies on climate disasters are unprepared, ineffective and unaccountable.

The Himalayan area has a fragile ecology. It is exacerbated by indiscriminate construction and inadequate disaster preparedness. The floods have destroyed crops, roads and houses, revealing how poorly ecological and climate concerns are incorporated into development.

Climate insurance is vital under such circumstances. Well-designed, it can guarantee that recovery funds are paid out promptly, transparently and based on need while helping advance climate-resilient practices. Insurers are already making a difference globally by reducing premiums and influencing climate behaviour, but climate insurance in India is still restricted to crop insurance.

With 65 crore farmers battling uncertain monsoons, floods, droughts and pest infestations, crop insurance is the most critical component of climate insurance. The Pradhan Mantri Fasal Bima Yojana insures only four crore farmers. Importantly, Punjab is not covered under the scheme.

However, payment delays, contested estimates, poorly defined processes and widespread farmer scepticism have eroded the scheme’s credibility. Farmers wait months to receive payments, at times getting cheques too low to pay even the most basic expenses. That negates the intent of insurance as a risk management tool.

Climate risk extends beyond agriculture and affects the overall economy. Horticulture in Uttarakhand and HP has suffered significantly. Yet, no insurance mechanism exists for perennial crops of this kind. Paddy, maize and cotton fields in Punjab and Haryana lie submerged, with apprehensions of huge losses and mounting debt. The collapse of infrastructure, like washed-out roads and homes, shows that even state investments lack climate-risk insurance coverage.

Early intervention can be three and a half times more effective than delayed relief. Why do we stick to a reactive disaster relief model instead of having a proactive, climate-linked insurance?

The government must implement climate insurance with parametric products, enabling instant payment as per pre-defined conditions such as rainfall, thereby bypassing the need for exhaustive evaluations. Micro-insurance for small farmers and low-income groups can provide coverage for produce, livestock, property and healthcare.

Sovereign insurance, in which state and Central governments employ financial instruments to cover large-scale risks, can help mobilise resources rapidly. Rainfall-, temperature- or soil-moisture-indexed insurance can cut administrative expenses and facilitate quicker payouts. These concepts have to be backed by robust regulation.

Insurance coverage in India is also lacking in accountability. Public policies need to align with climate requirements, be transparent and enforceable. The Congress’ strategy for farm reform emphasises the role of autonomous monitoring, direct benefit transfers and online tracking systems to ensure that each insured farmer receives timely payments. The party’s resolution on these reforms underscores that insurance must be farmer-centric, transparent and technologically enabled. As head of the Indian National Congress Committee on Agriculture and Welfare of Farmers, I had suggested that new ways to shield our farmers and economy from climate tragedies be found.

Without structural reforms, crop insurance risks becoming a bureaucratic formality rather than a real safety net. Our economy cannot absorb the shocks of a shifting environment.

It is time to shift from rhetoric to reality. The way ahead is to develop a national climate insurance policy that clearly defines tools, accountability and coverage norms. Crop insurance must be practical and adequate, not cosmetic. Also, no construction project should be approved without a climate-risk assessment and obligatory insurance. Satellite imagery, AI-based yield estimation and blockchain-enabled claim processing must be utilised to cut inefficiencies.

Climate insurance is not just about paying out losses; it is about investing in resilience.

Bhupinder Singh Hooda is former Chief Minister of Haryana.