The role of parametric insurance in protecting India’s agricultural sector

Climate stresses for farmers in India are becoming increasingly predictable in their negative dynamics. Over the last decade, 55 percent of tehsils have faced an increase in rainfall during the southwest monsoon season, and 64 percent of tehsils have seen an increase in the number of days with heavy downpours. At the same time, 11 percent of territories have recorded a rainfall deficit of more than 10 percent. In 2026, the impact of El Niño is forecast, which could lead to moisture shortages, extreme heat, and disruption of typical monsoon cycles. These weather conditions directly threaten the yield of rice, coffee, tea, rubber, spices, as well as plantations of coconut, areca nut, and vegetable crops.

To minimize the consequences, it is proposed to use a parametric insurance model. Unlike traditional programs, compensation here is paid upon the occurrence of a specific weather event confirmed by independent data—for example, a certain level of precipitation or a temperature threshold. Such a system eliminates the need for physical damage assessment, which allows for payments to be made in the shortest possible time.

For such a model to work effectively under El Niño conditions, experts highlight three key principles. First, insurance must be localized: average indicators for the state are not accurate enough, so it is necessary to rely on satellite data and detailed meteorological indicators of specific districts. Second, the product must be accessible to smallholdings, tenant farmers, and seasonal workers. The distribution of such policies can be carried out through cooperatives, panchayats, and self-help groups. Third, insurance should complement, not replace, adaptation measures such as the creation of water harvesting systems, the development of agroforestry, and the use of drought-resistant crops.

At the state level, the expansion of the PMFBY program coverage and the development of public-private partnerships are being considered. This is necessary to create new insurance products focused on livestock, fisheries, and the needs of small-scale agricultural producers, as well as to strengthen the network of weather stations and increase the transparency of payout terms.