As extreme weather conditions like floods, droughts, heat waves, etc. are taking a toll on people and the economy every year, organisations in India are turning to parametric or index-based solutions to mitigate losses from natural disasters. The Self Employed Women’s Association (SEWA) and Kerala Co-operative Milk Marketing Federation are among the societies experimenting with insurance. Among the Indian states, Nagaland is the first to implement it across the state. Following the expiry of its pilot parametric insurance from 2021 to 2023, the Rio-led government inked a memorandum of understanding with the State Bank of India General Insurance (SBI General) for a Disaster Risk Transfer Parametric Insurance Solution (DRTPS) earlier this month. The three-year insurance, which will be implemented by the Nagaland State Disaster Management Authority (NSDMA), is aimed at building an effective and sustainable risk transfer initiative in the event of a major disaster. It is a much-needed initiative, as the state is in a natural calamity-prone region, with rain-triggered events like floods and landslides affecting properties as well as causing the loss of lives almost every year. It will also serve as a safety net against unforeseen calamities, help protect infrastructure and reduce economic losses. Other states, especially in disaster-prone areas like the Northeast, should study the feasibility of the insurance policy in terms of disaster response and recovery and replicate it if found beneficial.
State governments and organisations are drawn towards parametric insurance mainly due to its prompt and quick response. In India, finance for disaster management is channelled through the State Disaster Response Fund, and it is marred by delays in the release of funds. However, parametric insurance facilitates an immediate payout to the affected members without any assessment, provided the intensity meets the predetermined parameters. This enables affected people to receive aid on time. It’s reported that more than 46,000 members of SEWA have received insurance payouts amid severe heat waves in north and northwest India over the last month. Meanwhile, parametric insurance has its share of limitations, as assessments are made based on perceived damages and may not necessarily reflect the real situation at ground zero. For instance, hundreds of families in Nagaland were affected by floods and other natural calamities during the period when the pilot insurance policy with Tata AIG was active, but it didn’t trigger any payouts due to the high threshold set in the agreement. The data used for determining the payout should have been based on the one provided by the India Meteorological Department and local weather stations instead of the data provided by the CHIRPS satellite. Lesson learned, the recent DRTPS is said to be based on parameters that suit the needs of the state. It’s a move in the right direction, considering the huge losses the state incurs every year due to natural calamities.
