Tech-driven insurance could shield all farmers from climate disasters: Will India adopt it?

Recent news reports indicate that the Indian government plans to design a nationwide climate-linked insurance programme. This initiative of ‘parametric insurance,’ a form of coverage under which payouts are made if a specific event occurs rather than to compensate for actual losses suffered, arrives at a particularly crucial moment.

The government’s decision would offer India a data-driven and transparent mechanism that protects vulnerable communities from climate-induced losses—which have been escalating. Under a parametric model, insurance payouts would be triggered once specific climatic thresholds are breached.

Smallholder farmers worldwide struggle to insure themselves against risks to safeguard their livelihoods. High premium costs, tiresome application and claim processes, limited transparency around indemnity terms and historically low claim settlement rates are some key barriers to adoption. All these have contributed to farmers’ reluctance to buy policies and eroded their trust in traditional indemnity-based crop insurance models.

In contrast, parametric insurance offers objectivity, simplicity, transparency and certainty of settlement. Underwriters and administrators spend less effort and money to process claims.

Farmers face numerous challenges, such as soil degradation and extreme weather events like unpredictable monsoon rains, droughts and cyclones. Each weather shock threatens their crops and their families’ survival. Many farmers lack financial support, which often forces them to rely on high-interest informal credit or multiple loans and leads to persistent indebtedness and poverty.

In 2016, the government launched the Pradhan Mantri Fasal Bima Yojana (PMFBY) to provide farmers a reliable safety net. It replaced the National Agricultural Insurance Scheme and the Modified National Agricultural Insurance Scheme.

While this indemnity-based insurance model has seen considerable success, it also faces a few challenges. High premiums, delayed claim settlements, low uptake among marginalized groups and limited reach in remote areas have held its coverage back.

Government policy should shift emphasis to a parametric insurance model, which uses weather indices tracked through satellite data and artificial intelligence (AI) to trigger automatic payouts. This cuts administrative costs, speeds up claims, lowers premiums and makes coverage more accessible, especially for smallholder and remote farmers.

The parametric model would ensure scalability and align with national farmer-protection policies by complementing the existing PMFBY framework.

Digital technology would have a key role to play in this model’s success. AI and real-time analytics enhance risk modelling, premium calculation and claim accuracy. Remote sensing and AI-driven assessments could thus boost trust and promote inclusion, even as farmer education campaigns drive adoption.

Fairer and faster protection would be especially beneficial for India’s marginalized farmers. Accountability would be high, as such systems keep the verification of insurance payouts simple.

Over time, event-based blanket insurance would reduce the government’s financial burden, as its need to make unplanned disaster-relief payments after extreme weather events would reduce. Most importantly, it would promote climate resilience and provide farmers with the financial stability they need to withstand and recover from environmental shocks.

Such a holistic approach that goes beyond mere crop insurance could also help meet the unique protection needs of different regions that are exposed to varied climate threats.

The government’s plan is likely to involve partnerships with local agricultural extension services, which could help disseminate information on parametric insurance and educate farmers on enrolment processes and claim procedures.

As the impacts of climate change are set to worsen, we must move quickly on taking parametric insurance to all parts of the country. In the final analysis, it offers a transformative solution that farmers should find more affordable, given how lower administrative costs would translate to lower premiums.

The use of modern technology, such as satellite imagery and real-time weather data, allows for saturation coverage, with no remote rural areas left out. Once farmers come to see how quickly and transparently automated payments are made, adoption should rise dramatically, though well-targeted awareness and training schemes must still be deployed to boost enrolment.

The path forward requires action. Policymakers must integrate parametric models within existing agricultural insurance frameworks. Technology providers must collaborate with agricultural departments to ensure reliable data infrastructure. Above all, farmers must be empowered through education and given the support necessary to embrace this innovation. Farm resilience is within reach if we act fast enough.

The authors are, respectively, associate partner and senior manager, MicroSave Consulting.