Insurers clock rise in parametric claims amid extreme weather events

Policy pays claims automatically when a predefined event meets a specific threshold

Indian insurance companies are recording a rise in parametric claims — paid out automatically when a predefined event meets a specific threshold (parameter) — and though awareness about the product is low they expect such business to grow due to the impact of climate change.

 

GoDigit General Insurance recently made its first parametric insurance payout of Rs 3,000 (per claim) to migrant labourers in Noida when the temperature breached its threshold of 42 degrees Celsius. It offers heat-index-based parametric insurance to migrant labourers in six cities in partnership with K M Dastur Reinsurance Brokers and Jan Sahas Foundation.

 

Bajaj Allianz General Insurance made claim payouts of Rs 500 to Rs 2,000 to policyholders in May for early monsoon. Its Climate Safe product provides cover against heatwaves and excessive rainfall in 200 cities in the country (temperature parameter is based on 30 years of historical weather data and algorithmic analysis).

 

Parametric insurance covers people whose earnings or daily work is affected by climate-change events like excessive rainfall or heatwaves. It operates on predefined weather parameters rather than traditional claim processes, making it automated. Insured events include earthquakes, tropical cyclones and floods, with magnitude, wind speed or water depth as parameters for coverage. 

 

Tata AIG General Insurance, ICICI Lombard General Insurance, Bajaj Allianz General Insurance and SBI General Insurance are among the handful of insurers that offer parametric cover.

 

“The sum insured for the product ranges from Rs 500 to Rs 2,000 per day, depending on the policy,” said Ashish Agarwal, head of Agri Business and CSC, Bajaj Allianz General Insurance.

 

“Policyholders are charged 3-6 per cent of the sum insured as premiums. As of now, around 80 customers have received payouts, triggered due to rainfall in May following an early monsoon. Although the awareness of parametric cover is low, there is a strong potential for the segment and there is a need for climate risk protection to be part of every household’s insurance portfolio,” he said.

 

“Integration with India Meteorological Department (IMD) data ensures daily monitoring. Policyholders are informed directly when they are eligible for a payout; no claim filing is required,” he added. 

 

GoDigit General Insurance has set a threshold temperature range (42-43.7 degrees Celsius) for heatwave claims in cities. The first payout is made automatically if the temperature in a city crosses the threshold for five consecutive days. If the temperature exceeds the threshold for 10 consecutive days, the exit strike will kick in, leading to an additional payout.

 

Parametric insurance also provides hospitalisation cash allowance of up to Rs 5,000 in case of accidental bodily injury or illness during an extreme weather event.

 

“There has been an increase in claims in parametric insurance due to change in climatic conditions. However, it is still very small in terms of volume,” said Sumant Salian, Associate Director, Alliance Insurance Brokers.

 

“Although there is potential for growth in the segment, the main challenge lies in awareness and threshold for claims. At reasonable levels of threshold, the premiums charged are high. Similarly, the distribution for parametric insurance continues to be low,” he said.