SYLLABUS

GS-3: Conservation, Environmental Pollution and Degradation, Environmental Impact Assessment.

Disaster and Disaster Management.

Context: The report, titled Climate Risks and Insurance for India’s Infrastructure and prepared by Climate Trends, finds that climate impacts in India are no longer rare events but are steadily increasing in both frequency and severity. 

Key findings of the Report: 

• Surge in India’s infrastructure spending: Crossed 3 per cent of Gross Domestic Product (GDP).

• Climate Risks Intensifying Across the Nation: Climate impacts in India are no longer sporadic but are rising steadily in both frequency and severity, with a sharp acceleration since the mid-2010s, as hydro-meteorological disasters, especially floods, come to dominate the risk landscape. 

• Infrastructure expansion in high-risk zones: Hydro-meteorological disasters dominated India’s climate impact calendar in 2025, with flooding, extreme rainfall, cyclones and landslides repeatedly hitting capital-intensive infrastructure. 

• High climate-exposed States: States such as Assam, Andhra Pradesh, Odisha, Uttarakhand, Himachal Pradesh, Sikkim, Ladakh and parts of the Northeast are among the most climate-vulnerable, even as large infrastructure investments are concentrated there. 

• The total investment exposure in these regions is estimated at about Rs 2.95 trillion, spanning ports, tunnels, highways and major hydropower projects.

• Insurance Gap: Although insurers are rolling out parametric and climate-responsive products for floods, cyclones, heat and excess rainfall, coverage gaps persist for high-impact risks such as cloudbursts and landslides—perils that are increasingly relevant for infrastructure in Himalayan and coastal regions.

• Insurance Sector under Strain: All insurers surveyed said existing models are inadequate to capture evolving climate impacts, raising the likelihood of a widening gap between economic losses and insured coverage.

• Two-thirds of insurers reported rising premiums since 2015, while all respondents flagged affordability challenges for infrastructure projects, particularly hydropower assets located in flood- and landslide-prone terrain. 

• Growing financial risks for governments, insurers and investors: Floods, cyclones, landslides and extreme heat are increasingly damaging highways, ports, urban assets and hydropower projects, pushing insurance premiums higher and driving some regions closer to the Threshold of Uninsurability.

• Regulatory challenge for IRDAI: The findings sharpen the challenge facing the Insurance Regulatory and Development Authority of India (IRDAI), which is simultaneously pushing insurers to deepen penetration, expand coverage and innovate around emerging risks such as climate change.

• India’s non-life insurance penetration remains around 1 per cent, far below global levels, even as climate-linked losses rise. 

• Fiscal implications for the finance ministry: As climate risks become more frequent and predictable, uninsured or under-insured losses are more likely to be absorbed through disaster relief, asset reconstruction, viability gap funding and public guarantees. This raise concerns around rising contingent liabilities.

• Rising financial burden: Globally, insured property losses exceeded $140 billion in FY25, while India’s natural catastrophe losses in 2023 reached $12 billion, well above the previous decade’s average—highlighting the scale of potential spillovers into public finances.

Key Recommendations in the Report

• Call for resilience-first planning: Climate resilience must be integrated into infrastructure planning from the outset rather than treated as a post-disaster fix, minimizing the costs of post-disaster reconstruction.

• Advanced actuarial models and standardised frameworks for risk disclosure, premium pricing and loss assessment for long-term insurance viability.

• Regulatory alignment and fiscal planning around climate risk: To tackle rising uninsurability, increased project risk premiums and deterring private capital that complicates India’s infrastructure-led growth strategy.