 "Dharali landslide: Why India needs flood insurance now more than ever")
We may believe in divine protection, but as the frequency and intensity of natural disasters rise across India, faith alone is not enough. The Dharali landslide on Tuesday in Uttarakhand — where entire structures crumbled like toy blocks — reinforces a sobering truth: nature does not discriminate, and recovery is often impossible without preparation. Yet in India, flood insurance remains a grossly underutilised tool despite its growing necessity.
Many citizens still wrongly assume that natural disasters are “Acts of God” and hence excluded from insurance coverage. This perception not only puts lives at risk but also widens the economic protection gap that India can no longer afford to ignore.
A flood-prone nation with barely any cover
According to a State Bank of India report in 2023, India ranks third globally in the number of natural disasters recorded since 1900, with 764 such events, including 361 since 2001. Of these, 41 per cent were floods — the most frequently occurring and most economically damaging of all natural disasters in India.
Between 2000 and 2022, India suffered an economic loss of Rs 12.45 lakh crore from natural calamities, with Rs 7.64 lakh crore attributed to floods and Rs 3.71 lakh crore to storms.
Despite this alarming trend, only around 0.9 per cent of Indian homes are insured, compared to over 90 per cent in the United States, the report said. The result is a massive protection gap. For India, 92 per cent of total disaster-related economic losses go uninsured, meaning that when disaster strikes, victims have no fallback other than inadequate state relief and personal savings.
Scope and importance of flood insurance
Flood insurance, a subset of home insurance, offers coverage for structural damage, water seepage, destruction of furniture and flooring, electrical short circuits and even ceiling damage due to stagnated water. Policyholders pay an annual premium determined by the flood risk in their area and the insured value of their property. Upon damage, claimants are compensated after assessment and documentation, helping them rebuild their homes and lives.
The primary advantage is financial security. In a flood, families often lose everything: homes, appliances, savings and livelihoods. Flood insurance ensures they receive compensation for the full or partial value of these assets. It covers both immediate repair and complete replacement if needed.
Impact Shorts
More ShortsMoreover, having insurance in flood-prone areas brings peace of mind — a priceless commodity during the monsoon months.
Yet, according to Policybazaar, less than 1 per cent of Indians hold such policies. Contrast this with the United States, where the National Flood Insurance Program covers millions of homes in designated flood zones.
The under-penetration in India is a symptom of deeper systemic issues: poor awareness, affordability concerns, mistrust in insurance firms and bureaucratic inefficiencies.
Economic cost of inaction
The economic consequences of underinsurance are staggering. In 2024, Assam, Kerala, Himachal Pradesh and Tripura were all ravaged by floods. In Andhra Pradesh alone, damages were estimated at Rs 6,880 crore, while Telangana reported losses worth Rs 10,300 crore. Total losses across flood-hit states were expected to exceed Rs 15,000 crore, surpassing even 2023’s devastating season.
But as only around 8 per cent of these losses are insured, as per the State Bank of India report, nearly Rs 13,800 crore will either be written off or need to be covered by government relief funds — resources that are already stretched thin.
The government allocated Rs 68,463 crore to the National Disaster Relief Management Fund (NDRMF) and Rs 1,60,153 crore to State Disaster Relief Management Funds (SDRMF) for 2021–2026. But these funds are primarily reactionary, with 80 per cent reserved for disaster response, not mitigation or long-term recovery.
Learning from global models
Other nations offer effective frameworks India can adapt. The Caribbean Catastrophe Risk Insurance Facility and the South East Asian Disaster Risk Insurance Facility operate on a public-private partnership model to share risk between governments and insurers. France’s Caisse Centrale de Réassurance provides broad catastrophe insurance, covering floods, earthquakes, landslides and even terrorism.
In the Philippines, the Government Service Insurance System Programme uses parametric insurance, which releases funds based on predefined triggers like rainfall levels or storm strength, rather than damage assessments. This speeds up payouts and avoids lengthy inspections. Such approaches reduce post-disaster lag, ensuring quicker rehabilitation.
India has tested parametric insurance through pilots like Nagaland’s SDMA project (2021–2023) and Sewa’s microinsurance schemes in Gujarat and Maharashtra. Though early efforts were flawed due to outdated data, they laid the foundation for scalable models. Policymakers can now leverage updated climate data and technology to refine these schemes for broader implementation.
Bridging the protection gap
As per State Bank of India report, India’s overall protection gap — the share of economic losses that go uninsured — stands at 92 per cent, far higher than the global average of 54 per cent. In real terms, an average Indian family has just Rs 8 for every Rs 100 needed to cope with disaster-related financial shocks.
No model will succeed without addressing the root cause of underinsurance: low awareness. Most citizens don’t even know that flood insurance exists. Others dismiss it, assuming it’s too costly or that state relief will suffice.
What’s needed is a nationwide insurance literacy campaign, perhaps bundled with property tax collection or building permit processes, to make people aware of both the benefits and affordability of flood coverage.
Moreover, regulatory reforms must make flood insurance easier to buy, renew and claim. Streamlining digital claims, offering standardised policies through apps and providing subsidies for low-income households in high-risk zones could greatly enhance adoption.
A harsh reality
India is facing a climate reality that can no longer be ignored. The frequency and severity of floods are rising, and with them, the economic and human toll. Faith in divine protection is important, but equally essential is a pragmatic approach that includes flood insurance as a frontline defence.
With just 0.9 per cent of homes insured, a protection gap of 92 per cent, and economic losses in the tens of thousands of crores each year, it is time India builds a new framework.
Public-private partnerships, regional catastrophe pools, parametric insurance pilots and robust awareness programmes together can fortify India’s resilience. The cost of inaction will only continue to rise with every monsoon that turns into a disaster and grants.
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