One of the most profound impacts of parametric insurance lies in its potential to empower disadvantaged communities, particularly women
In the Himalayas, flash floods, landslides, wildfires and other extreme weather events are increasingly disrupting daily life and devastating communities, particularly those reliant on agriculture and natural resources. Between 2017 and 2020, more than1.8 million people were affected by climate-induced disasters in Nepal, according to the Nepal Disaster Risk Reduction Portal. As extreme weather events become more intense and more frequent, the country faces growing threats to its food security, economic development and social stability, highlighting the urgent need for solutions.
Traditional financial mechanisms often fail to deliver timely or adequate relief to affected and vulnerable populations. Instead, leaders should scale innovative finance tools like parametric insurance and adapt them to the specific needs of communities and regions.
Parametric insurance provides a payout when a specific event takes place, such as a cyclone or earthquake, regardless of the extent of the damage. Unlike traditional indemnity insurance, which requires a loss assessment process, parametric insurance triggers payouts based on predefined parameters like wind speed or rainfall levels, ensuring quicker disbursement of funds. This speed is crucial in the immediate aftermath of a disaster.
When Typhoon Rai struck the Philippines in December 2021, a parametric insurance programme developed by Germany's Insu Resilience initiative provided payouts to affected communities within days.
In addition to the rapid disbursement of funds, parametric insurance significantly reduces administrative costs, making it more cost-effective for insurers and policyholders. Parametric insurance can also be specifically tailored to the needs of low-income and vulnerable populations, improving accessibility and providing a vital safety net against climate-induced financial shocks.
While parametric insurance is a powerful tool for managing climate risks, its true potential lies in its adaptability to the unique challenges of specific regions. Localising parametric insurance allows the product to address climate risks, socioeconomic conditions and cultural contexts that vary dramatically across regions.
In Nepal, for example, the diverse topography and unique vulnerabilities of Himalayan communities require a customised approach to insurance. Localised solutions like the Himalayan Everest Insurance initiative, supported by The Rockefeller Foundation and the Nepal Economic Forum, are designed to address unique climate threats faced by these communities.
Generic, one-size-fits-all models would fail to provide adequate coverage or timely relief in the face of such specific risks. Tailoring these solutions also ensures they respond to realities on the ground, providing the necessary financial buffers to help communities recover quickly and build resilience for future shocks. Additionally, vulnerable communities often lack access to traditional insurance, making localised parametric insurance even more essential.
One of the most profound impacts of parametric insurance lies in its potential to empower disadvantaged communities, particularly women. Financial products like parametric insurance provide these women with immediate support to recover from climate shocks, allowing them to reinvest in their farms and families. The International Fund for Agriculture Development (IFAD) and Nepal Government's parametric insurance programme, which provided payouts to women farmers during severe floods in 2023, demonstrates how these products can be a lifeline for vulnerable communities.
Another model is the Extreme Heat Income Insurance programme in India, developed by The Rockefeller Foundation, Self Employed Women's Association (SEWA) and Blue Marble. This product is designed to protect women working in India's informal sector from income loss due to extreme heat. By addressing a localised climate risk and focusing on a vulnerable population, this initiative not only builds financial resilience, but also offers a model for expanding similar parametric insurance solutions to other regions and sectors.
Collaborative projects like these are critical in ensuring parametric insurance can be scaled, providing protection to those most affected by climate disasters. Reports from United Nations Women highlight that such financial protections promote broader socioeconomic development, reinforcing the importance of integrating gender-sensitive approaches in climate resilience strategies.
Mobile platforms and digital infrastructure are critical tools in making parametric insurance more accessible. In rural areas of Southeast Asia and South Asia, mobile internet access is increasing, making it even easier to reach remote populations with parametric insurance. Partnerships with mobile payment platforms such as eSewa have allowed for more efficient distribution of these insurance products. In Indonesia, an Insurtech Lexasure and an NGO AgriON's partnership successfully leveraged mobile apps to provide farmers with instant payouts. The integration of mobile technology and digital wallets streamlines access, enabling vulnerable populations to receive financial support swiftly and simply.
As the climate continues to change, we must reimagine how to effectively protect vulnerable populations. Parametric insurance holds tremendous promise, but its success depends on adaptation to local contexts and community needs. Policymakers, insurance providers and other stakeholders must commit to investing in parametric insurance, developing regulatory frameworks that foster innovation, and integrating technology to ensure these financial tools are accessible. If we act now, we can help ensure a more resilient future.
Khanna is Vice President, Asia Region Office, The Rockefeller Foundation, while Shrestha is Chairman of Himalayan Everest Insurance Limited.
