Income protection and early warning systems: How India is building climate resilience

As the planet warms and extreme weather events become more frequent and intense, insurers are struggling to cover the resulting ballooning economic losses. The insurance sector saw net underwriting losses soar to more than $100 billion in 2023, a new record, according to industry estimates.

Insurers often respond to these climate-driven financial risks by withdrawing coverage from exposed markets, raising premiums and exiting risk-prone communities. At the same time, as insurance rates increase, people forgo coverage. This not only leaves them vulnerable to climate perils, but also drives prices even higher as the number of people paying premiums and sharing risk shrinks.

This perfect storm makes it more difficult for people in these vulnerable communities to get insurance. This prevents them from accessing key services such as mortgages, which encourages climate migration and drags down macroeconomic stability and growth.

India has seen unparalleled growth and development in recent decades, but risks losing ground due to heightened exposure to climate perils including heat waves, floods and earthquakes.

It has endured a scorching summer this year, with capital city Delhi experiencing the country’s highest-ever recorded temperature of 49.9 degrees Celsius (121.8 Fahrenheit). This heat wave caused school closures in several states, while local governments sent out heat alerts to warn people to stay inside. Even so, dozens of outdoor poll workers died while working during this year’s election.

The impact of extreme climate events in India touches on nearly every aspect of its economy and society, but is more pronounced in particularly exposed sectors such as agriculture, which comprises 15% of India’s GDP and employs around 40% of its population – 70% among its rural households.

Between 2015 and 2021, India lost 33.9 million hectares of crops due to excess rains and an additional 35 million hectares due to drought. Several Indian sectors including agriculture suffered $159 billion in economic losses in 2021 due to lost working hours from extreme climate impacts. By 2030, India is projected to see a substantial 5.8% decline in working hours – equivalent to 34 million full-time jobs – due to heat stress.

These numbers are only likely to increase as climate change continues. If, as expected, 45 million people are forced to migrate from their homes by 2050 as a result of climate change, this displacement would have cascading effects on local economies, for example by reducing tax revenues.

The impact of extreme weather falls disproportionately on the shoulders of low-income Indian communities. But the significant barriers in accessing adequate insurance described above have created a coverage gap.

To address this challenge, the country’s government agencies and business leaders are working on a number of effective sector-specific local and national strategies. These initiatives could be replicated to help vulnerable communities in other parts of the world. Here are three of the strategies for building climate resilience at scale that are being implemented in India today:

1. A digital insurance platform for farmers

India’s Minister of Agriculture recently launched the Sandbox for Agricultural and Rural Security, Technology and Insurance (SARATHI) to provide a comprehensive suite of insurance products for farmers in rural India. This user-friendly digital platform will simplify the process for farmers to view and purchase insurance, helping to decrease the coverage gap for the roughly 40% of India’s population working in the agricultural sector.

Such initiatives will be pivotal in helping farmers to become more resilient while also shielding them from the volatility of climate change.

2. Innovative income replacement insurance for women

The Women’s Climate Shock insurance and Livelihoods initiative (WCS) recently established a first-of-its-kind income replacement product so female outdoor workers aren’t forced to work during extreme heat waves.

During a record-breaking heatwave this year, the product paid out to more than 46,000 female outdoor workers, replacing the income they would have lost due to their inability to safely work amid extreme temperatures. The programme includes an early warning system that provides guidance for specific communities. It also helps participants access the financial system by providing bank accounts so they can receive the money more quickly and directly.

This product is already being introduced to other at-risk communities in India and beyond.

3. Pioneering heat action plans

India was the first country in South Asia to create a heat action plan after an extreme heat wave in the city of Ahmedabad in 2010 resulted in a 43% increase in mortality compared with the same period in previous years. The plan includes a system to alert residents when dangerous heat waves are expected and provides cooling centres. It also educates healthcare workers about how to recognise and treat heat-related illnesses. A study of the impact of this programme has shown it saves around 1,190 lives per year.

This heat action plan was complimented by a statewide policy to paint or tile roofs in white to reflect sunlight and help cool buildings. Heatstroke wards were also set up in the state’s major hospitals, while a workshop run by India’s National Disaster Management Authority helps local officials prepare for extreme heat.

Insurers could work more closely with policy-makers and government officials to use the industry’s leading risk analytics, predictive tools and climate data to inform more heat action plans and direct capital towards high-impact adaptation interventions.

By 2050, extreme weather events are projected to cost the global economy $38 trillion per year without adaptation strategies. This is why insurance industry leaders must work with policy-makers and other key stakeholders to accelerate action to prevent the worst impact of climate perils.

The case for proactively addressing climate risk has never been more clear. A recent study shows that each dollar invested in climate resilience yields up to $13 in long-term cost savings, but 88% of climate disaster funding is allocated after extreme weather events happen.

Achieving sustainable and resilient growth will require a generation-defining commitment from public and private leaders to build climate resilience in vulnerable communities and economies around the world.