By: Malay Kumar Poddar and Dr. C.S. Murthy
Managing Director and Advisor, respectively, InRisk Labs – a climate risk insurance initiative by Swatantra Technologies, Ahmedabad
India’s ambition to provide universal insurance coverage across agriculture and allied sectors by 2047 will require a shift from conventional indemnity-based insurance to technology-driven parametric insurance. The authors explain why satellite data, AI, weather intelligence and digital public infrastructure will be central to building climate-resilient agriculture.
Ahmedabad :
Agriculture and allied sectors, which support the livelihoods of a large proportion of India’s population, have long been recognised as economically stressed. Climate change has further intensified these challenges, reducing the viability of farming and allied activities. Strengthening financial resilience in these sectors is therefore essential, and establishing an effective risk transfer mechanism is a critical component of that resilience.
Recognising this need, the Government of India has set an ambitious objective of achieving universal insurance coverage across agriculture and allied sectors by 2047. The goal is to protect farmers and allied enterprises against natural disasters and weather-related risks while encouraging greater investment, innovation and long-term economic growth.
However, the changing nature of climate risks demands a broader range of insurance solutions. In this context, parametric insurance assumes increasing importance.
Globally, the insurance industry is undergoing a significant transformation, with parametric insurance emerging as an effective tool for managing natural catastrophe risks. Unlike conventional indemnity-based insurance, which depends on physical assessment of losses, parametric insurance provides payouts based on predefined and objectively measurable parameters. This approach is reshaping insurance markets worldwide and holds immense promise for developing economies such as India.
The global parametric insurance market, valued at around USD 17 billion in 2024, is projected to exceed USD 70 billion by 2037, growing at a compound annual growth rate (CAGR) of nearly 12 percent. Initially focused on risks such as hurricanes, earthquakes, floods and droughts, parametric products are now expanding into areas such as business interruption and other climate-related risks.
Traditional indemnity-based insurance products address only a limited range of risks. Agriculture and allied sectors—including seasonal and annual crops, perennial plantations, fisheries, dairy, poultry, sericulture, beekeeping and sheep rearing—require a much wider portfolio of insurance products tailored to their unique production systems and risk profiles.
The greatest strength of parametric insurance lies in its reliance on predefined triggers derived from objectively measured data rather than subjective field-level loss assessments. By eliminating many logistical challenges associated with conventional claim verification, parametric systems enable faster and more transparent claim settlements.
One of the principal challenges of parametric insurance is managing basis risk—the possibility that payouts may not exactly match the actual losses suffered. However, careful selection of reliable datasets and scientifically designed trigger points can substantially reduce this risk. The advantages of parametric insurance—including simplicity, transparency, rapid assessment, timely payouts, customisation and scalability—far outweigh this limitation.
Technological Advancements: A Boon for Parametric Insurance
Rapid advances in digital technologies are creating unprecedented opportunities for parametric insurance. Data-driven technologies enable innovative insurance products while improving scalability, outreach and operational efficiency across the entire insurance value chain—from product development and enrolment to loss assessment and claim settlement.
Satellite Data
Satellite imagery is increasingly used for crop mapping, crop health monitoring, yield estimation, loss assessment and crop planning. Emerging hyperspectral imaging technologies are also showing promise in specialised applications such as soil nutrient mapping and pest or disease detection, although these applications are still evolving.
High-resolution satellite imagery is valuable for georeferencing cadastral maps, generating detailed land-use information, mapping horticultural and plantation crops, and assessing localised crop losses. In addition, openly available satellite-derived biophysical datasets are extensively used for monitoring crop conditions and modelling agricultural performance.
Upcoming satellite missions—including the European Space Agency’s LSTM mission, the US Geological Survey’s Landsat Next and the recently launched NASA-ISRO NISAR mission—are expected to generate new datasets that will significantly enhance crop monitoring and create opportunities for innovative insurance products.
Drones
Drone-based imagery offers superior spatial and temporal resolution for assessing localised crop damage. However, drone surveys remain relatively expensive and time-consuming for large-scale deployment. Since satellite imagery often has limitations in detecting highly localised losses, integrated approaches combining satellite and drone data are being developed to improve assessment accuracy.
Smartphones
Smartphone-based crop photographs, integrated with high-resolution satellite imagery and weather datasets, create new possibilities for picture-based insurance products designed for individual farmers.
Artificial intelligence and machine learning are rapidly advancing the automated extraction of crop information such as crop type, growth stage, canopy damage and flood inundation. Such technologies have the potential to replace manual field assessments, minimise moral hazard and significantly reduce claim settlement timelines.
Weather Data
India’s expanding weather station network, particularly under the Department of Agriculture and Farmers Welfare’s WINDS project, is expected to generate more granular and standardised weather datasets.
Advanced meteorological models and satellite observations are also producing increasingly precise weather information, which is essential for developing insurance products covering fisheries, poultry, dairy and other allied agricultural enterprises.
The rapid evolution of data-generation technologies and advanced analytics will enable the creation of customised smart insurance contracts and end-to-end digital insurance platforms. These innovations promise greater scale, speed, transparency, efficiency and timely payouts, thereby encouraging wider participation.
Critical Requirements
Achieving universal parametric insurance coverage across agriculture and allied sectors by 2047 will require several key policy and institutional interventions.
Standardised datasets: Reliable risk modelling requires timely, accurate and granular historical as well as real-time datasets. This demands systematic data collection, curation, standardisation and seamless data-sharing platforms.
Digital Public Infrastructure (DPI): A dedicated digital public infrastructure for insurance will serve as a foundation for innovation. Open access to trusted public datasets could become a game changer for the insurance ecosystem.
Digitalisation of the Insurance Value Chain: The entire insurance lifecycle—from enrolment to claim settlement—must become fully digital and data-driven to maximise efficiency and transparency.
Awareness and Trust Building: Awareness of parametric insurance remains limited among farmers, field officers and state departments. Large-scale capacity-building, training and demonstration programmes will be essential to build confidence in these innovative products.
Research and Development: Investment in research remains inadequate. Developing robust parametric insurance solutions requires collaboration among experts in agriculture, climate science, actuarial science, remote sensing, artificial intelligence and data analytics to build accurate risk models and evaluate their effectiveness.
The Way Forward
The need for smart parametric insurance solutions to achieve universal insurance coverage in agriculture and allied sectors is now widely recognised. Encouragingly, the current ecosystem of digital innovation, technological capability and public acceptance provides a strong foundation for scaling such solutions.
With coordinated efforts by governments, technology companies, insurers and reinsurers, India has the opportunity to build affordable, transparent and impactful risk transfer systems that protect farmers against climate risks. If pursued with commitment and collaboration, the country’s aspiration of providing insurance for all in agriculture and allied sectors could well be realised even before the target year of 2047.
The views expressed are personal.
