State-owned GIC Re has mooted the idea of putting in place a “parametric insurance” umbrella for citizens across the country to the Government.
This insurance cover, which will be offered by general insurers as and when it is formalised, will ensure immediate pay outs to citizens on occurrence of a natural catastrophe endemic to their region.
Parametric cover is a type of insurance cover that pays out a pre-agreed amount for losses to assets such as homes and farms when a pre-defined adverse event occurs. It is based on pre-agreed triggers or parameters.
Ramaswamy Narayanan, Chairman and Managing Director, GIC Re, said: “Parametric cover is slightly different from a traditional insurance product. In the traditional product, if a Cat (Catastrophe) event takes place, the insurance company will send its surveyors over. They will assess the losses that have happened, who has been affected…Obviously, this process takes a little bit of time.
“What we are planning to come out with is a parametric cover, where the payout will depend on a pre-defined trigger being met.”
Payouts under parametric cover are graded, rising with the intensity of Cat events such as earthquakes, cyclones and floods.
“We know what the loss will be. So, payout happens to the person (from the insurer) and to the insurance company (from the re-insurer) without even asking for it. So, the claims payment becomes much faster. I think, this is the way to manage catastrophe,” Ramaswamy said.
Under Parametric cover, usually, the insurer/ re-insurer has the right to assess actual losses and go for claims adjustment process later on.
“Currently, if a Cat event happens, people at the lowest levels are affected…Most of the time they don’t have insurance. When Cat happens, 8 per cent is the insured loss, 92 per cent is the economic, uninsured loss,” the GIC Re chief said.
India’s largest re-insurer is in talks with the central government to have some kind of a countrywide parametric cover.
Each district, each village will be have specific insurance covers, which the Government could sponsor, to cover losses due to Cat events – at some places it could be for earthquakes and at some places it could be cyclones.
In this regard, it may be pertinent to mention here that the 15th Finance Commission had recommended setting up a disaster database as a special initiative.
“The database should have disaster assessments, the details of allocations and expenditure and preparedness and mitigation plans. As insurance coverage expands in India, such a database would be extremely helpful in diversifying and improving insurance products and services,” the Commission said.
The Commission also recommended exploring an additional layer of protection against extreme hazard events through the international reinsurance market.
It noted that such a protection would have a parametric feature, aimed at low-frequency, high-intensity disaster events, and would provide an additional layer of protection through a global risk pool. The index for such disasters could be defined in terms of magnitude and severity. For example, a great earthquake of magnitude 8 Mw or a super-cyclone could be the trigger for insurance pay-out.
The Commission observed that it would be necessary to procure such an insurance protection through market quotes. Due to the low frequency of disasters and a global reinsurance pool, the premium for a parametric risk protection could be cost effective.
Published on June 9, 2025
