India’s infrastructure spending has crossed three per cent of gross domestic product, but rising climate risks are increasingly threatening the insurability of critical assets such as highways, ports, hydropower projects and urban infrastructure, according to a new report by Climate Trends. The analysis warns that as climate impacts become more frequent and predictable, some regions of the country could move dangerously close to the threshold of uninsurability, raising serious fiscal and financial concerns for governments, insurers and investors.
Titled Climate Risks and Insurance for India’s Infrastructure, the report finds that floods, cyclones, landslides and extreme heat are inflicting growing damage on capital-intensive infrastructure, pushing insurance premiums higher and exposing major gaps between economic losses and insured coverage. All insurers surveyed for the study said current risk models are inadequate to capture evolving climate impacts, increasing the likelihood of underpriced risks and widening protection gaps.
Climate Impacts No Longer Sporadic, Risks Rising Since Mid-2010s
The report notes that climate impacts in India are no longer isolated events but are rising steadily in both frequency and severity, with a sharp acceleration since the mid-2010s. Hydro-meteorological disasters especially floods now dominate the country’s risk landscape. Urban infrastructure, highways, ports and hydropower assets are ranked as facing high to very high climate risk.
An analysis of Delhi illustrates the growing mismatch between development and risk exposure. While the city’s urban area expanded at an annual rate of about 1.3 per cent between 1986 and 2016, flood exposure increased much faster, at around 2.46 per cent annually. The report warns that this divergence is likely to widen further as asset concentration increases in hazard-prone zones.
Infrastructure Boom Concentrated in High-Risk Regions
Large infrastructure investments are accelerating in some of India’s most climate-vulnerable states, including Assam, Andhra Pradesh, Odisha, Uttarakhand, Himachal Pradesh, Sikkim, Ladakh and parts of the Northeast. According to the report, total investment exposure in these regions stands at roughly ₹2.95 trillion, spanning ports, tunnels, highways and major hydropower projects.
Hydropower projects, national highways and urban infrastructure located in flood- and landslide-prone areas were repeatedly flagged by insurers as major points of concern. While most of India remains within insurable limits for now, premium affordability for such assets is already under strain, particularly in mountainous and coastal regions.
Interviews with insurers and reinsurers, including SBI General Insurance, Munich Re India, Swiss Re India and the General Insurance Corporation of India, reveal mounting stress in climate risk pricing. Nearly two-thirds of insurers reported rising premiums since 2015, while all respondents highlighted growing affordability challenges for infrastructure projects.
Insurers warned that uncertainty around future climate impacts is making underwriting increasingly complex, potentially discouraging coverage or shifting risk back onto project developers and the state. Coverage gaps are especially pronounced for high-impact perils such as cloudbursts and landslides, which are becoming more frequent in Himalayan and coastal regions.
Regulatory Pressure on IRDAI as Climate Losses Rise
The findings intensify the challenge facing the Insurance Regulatory and Development Authority of India (IRDAI), which is pushing insurers to expand coverage and innovation even as climate-linked losses escalate. India’s non-life insurance penetration remains at around one per cent, far below global averages.
The report argues that without standardised frameworks for climate risk disclosure, modelling, underwriting and premium pricing, insurers may struggle to remain solvent while keeping infrastructure insurance affordable. Although parametric and climate-responsive insurance products are emerging, the scale of coverage remains insufficient for large infrastructure assets.
Fiscal Risks Mount for Government and Public Finances
For the finance ministry, the report raises concerns over rising contingent liabilities. As climate risks become more predictable, uninsured or under-insured losses are increasingly likely to be absorbed through disaster relief, asset reconstruction, viability gap funding and public guarantees.
Globally, insured property losses crossed $140 billion in FY25, while India’s natural catastrophe losses reached $12 billion in 2023—well above the previous decade’s average. The report warns that continued infrastructure expansion in high-risk regions without climate-resilient design could significantly elevate fiscal exposure, especially given the involvement of public sector banks and state-owned insurers.
Resilience-First Planning Key to Sustaining Growth
Aarti Khosla, founder and director of Climate Trends, said climate resilience must be integrated into infrastructure planning from the outset rather than treated as a post-disaster response. She warned that India’s ambition for rapid infrastructure-led growth could face serious setbacks if climate risks are not factored into investment and insurance frameworks.
Without regulatory alignment, improved climate-risk modelling and resilience-first planning, the report cautions that rising uninsurability could drive up project costs, deter private investment and complicate India’s long-term growth strategy.