Page 37 - The Insurance Times December 2024

Emerging Strategies in Climate Risk In- 5. Collaboration with Governments and NGOs: Given the
scale and complexity of climate risks, collaboration
surance Models between insurers, governments, and NGOs is essential.

To address these challenges, insurers are evolving and adopt- Public-private partnerships can enhance the resilience
ing new models that can better withstand the impacts of of communities by creating safety nets for popula
climate change. Here are some key strategies emerging in -tions that are difficult to insure. In India, insurance com-
India and globally: panies are working with the government to develop so-
1. Parametric Insurance Models: Parametric insurance is lutions that provide coverage for farmers and rural popu-
an innovative approach where payouts are triggered by lations, which are among the most vulnerable to climate
predefined parameters, such as the level of rainfall or risks.
wind speed, rather than actual loss assessments. This
6. Reinsurance as a Safety Net: Reinsurance, where in-
type of insurance is particularly useful for climate-re-
surers purchase insurance to protect themselves from
lated risks, as it allows for rapid claims processing and
reduces the need for detailed on-the-ground damage massive losses, is increasingly essential in the context
of climate risks. By spreading risk across global markets,
assessments. In India, parametric insurance is gaining
reinsurers help primary insurers manage their exposure
traction in agriculture, where farmers receive compen-
sation based on weather data, reducing financial strain to catastrophic events. In India, insurers have been in-
creasingly relying on reinsurance to cope with the im-
during crop loss events.
pact of large-scale natural disasters.
2. Incorporation of Climate Data in Underwriting: Insur-
ers are increasingly incorporating real-time climate data, Global and Indian Case Studies: Insurers
predictive analytics, and machine learning into their un-
derwriting processes. By using advanced climate mod- Adapting to Climate Risks
els, insurers can make better predictions about extreme 1. Swiss Re's Climate Resilience Initiative: Swiss Re, one
weather risks and adjust premiums accordingly. For ex- of the world's leading reinsurance companies, has pio-
ample, insurers may use satellite imagery to assess flood neered climate resilience initiatives, including develop-
risks in real time, allowing them to offer dynamic cover- ing parametric solutions for countries vulnerable to
age that reflects current risk levels. hurricanes, floods, and wildfires. Swiss Re has also
partnered with governments to create insurance pro-
3. Microinsurance and Climate-Specific Policies: In devel-
grams that address specific climate risks, helping com-
oping countries like India, where large populations are
munities recover quickly after disasters.
vulnerable to climate risks, microinsurance is an effec-
tive way to offer affordable and targeted coverage. 2. HDFC ERGO's Pradhan Mantri Fasal Bima Yojana
These policies are designed to provide low-income popu- (PMFBY): In India, HDFC ERGO provides insurance cov-
lations with financial support during climate-related erage to farmers through the government's PMFBY
disasters. For instance, some microinsurance products scheme. This scheme offers crop insurance using para-
in India provide low-cost coverage for floods, droughts, metric models to compensate farmers based on rain-
and cyclones, helping rural communities build resilience fall and yield data, thereby helping them cope with
against climate shocks. losses due to droughts or floods. It is an example of how
insurers are using innovative solutions to make insur-
4. Green and Sustainable Insurance Products: In re-
ance more accessible and effective in addressing climate
sponse to both regulatory pressures and consumer de-
risks.
mand, many insurers are developing green insurance
products that reward environmentally friendly prac- 3. Bharti AXA's Weather-Based Crop Insurance Scheme
tices. For example, insurers may offer discounts on pre- (WBCIS): Bharti AXA's WBCIS uses weather data to as-
miums for buildings that use sustainable materials or sess crop losses and provide compensation to farmers.
for companies that meet certain carbon reduction By focusing on factors such as temperature, rainfall, and
goals. By incentivizing sustainability, insurers not only humidity, the scheme allows for faster and more trans-
reduce risk exposure but also contribute to climate parent claims settlement. This product has become a
mitigation. model for effective climate-specific insurance in India.

34 December 2024 The Insurance Times