1. Low awareness and financial literacy. There is a widespread lack of awareness among the general public about the importance and benefits of disaster insurance. Many individuals and communities, especially in rural and vulnerable areas, are not adequately informed about available insurance products, or how these can protect them from the financial aftermath of disasters.
2. Affordability and accessibility issues. For large sections of the population, particularly those with low incomes, insurance premiums are perceived as unaffordable. This is compounded by limited access to insurance services in remote or disaster-prone regions, making it difficult for people to purchase or renew policies.
3. Trust deficit and perceived value. A lack of trust in insurers and doubts about timely and fair claim settlements discourage people from investing in insurance. Many believe that the process of claiming insurance is cumbersome or that payouts may not be sufficient or prompt, reducing the perceived value of insurance as a safety net.
4. Inadequate product innovation and customisation. Insurance products have not always been tailored to specific risks faced by regions or communities. There is a lack of innovative and region-specific insurance solutions.
5. Regulatory and institutional challenges. The regulatory framework and institutional support for disaster insurance are still evolving. There are gaps in policy coverage, limited incentives for private insurers to enter high-risk markets, and insufficient public-private partnerships to expand coverage.
6. Historical reliance on government relief. There is a longstanding dependence on government relief and humanitarian assistance after disasters. This has reduced the urgency for individuals and communities to seek insurance as a risk management tool.
7. Data and risk assessment limitations. Accurate risk assessment and pricing are hampered by insufficient granular data on hazards. This leads to either high premiums or inadequate coverage and lack of pricing transparency, discouraging uptake.

Absence of protection

India’s legal framework for insurance is robust in certain respects but glaringly inadequate when it comes to comprehensive protection against natural disasters. The Disaster Management Act, 2005 is the principal statute governing disaster management in India. While it establishes the institutional framework for disaster response and mitigation, its provisions regarding compensation are limited.

It does not explicitly mandate insurance coverage. The act empowers the central government to provide ex gratia payments to victims of disasters, but these are discretionary. There are no objective criteria for determining eligibility or compensation, leading to inconsistencies and, often, inadequate relief. The act does not prescribe a strict timeline within which this ex gratia payment is to be made to the victims, further taking away from the efficacy of remedy provided under the statute.

There is also no dedicated legislation that mandates or standardises insurance coverage for losses arising from floods, landslides, earthquakes or similar events. In the absence of a statutory insurance mandate, the Insurance Regulatory and Development Authority of India (IRDAI) steps in during major disasters.

The IRDAI has, on several occasions and for many such incidents issued notifications directing insurers to expedite claim settlements, relax documentation requirements, manage settlements electronically to the extent possible, and set up special help desks in affected areas. While these measures provide relief, they are reactive and piecemeal, tailored to specific disasters rather than forming part of a comprehensive framework.

Judicial pronouncements

Indian courts have regularly addressed issues related to interpretation of insurance contracts, including for natural disasters and disputes between insurers and policyholders. But there are limited judicial pronouncements where insurance protection has been recommended as protection for natural disaster victims. Indian courts have generally refrained from laying down objective criteria for compensation or expanding statutory protection to include insurance coverage.

A significant example of this hesitancy is the Supreme Court’s decision in Reepak Kansal and Ors v Union of India (2021). In this case, the petitioners sought directions for ex gratia payments to covid-19 victims and the implementation of a national insurance programme for such disasters. It may be noted that covid-19 was declared as a notified disaster and is covered under the Disaster Management Act, 2005. The court declined to intervene on the grounds that such matters fell within the policy domain of the executive.

The judgment noted that the 15th Finance Commission had already recommended a national insurance scheme and expressed hope that the government would act on these recommendations. However, no concrete steps have been taken to date to translate these recommendations into reality. Further, while the court held that it was the responsibility of the national authority to recommend guidelines for ex gratia payments, it refused to lay down any objective criteria with regard to the amount of compensation payable.

Similarly, in Ficus Pax Private Limited v Union of India (2020), the judiciary again stopped short of issuing binding guidelines. Instead, the court urged employers and employees to arrive at mutually agreeable arrangements regarding payments during the pandemic, opting for interim measures rather than systemic solutions.

In S Senthilkumar and another v the Director of Fisheries Department (2022), the Madras High Court heard the case of a couple of fishermen whose request for financial assistance under a central government scheme, resulting from a cyclone, was rejected. The court laid down certain guidelines on the manner in which inspection had to be conducted for assessing such requests, and directed that compensation payable under statutory/government schemes in such cases cannot be rejected in an arbitrary manner. While this was a notable decision, there are only a few such instances.

Government schemes

While there is no national insurance framework for natural disasters, the government has, from time to time, introduced successful insurance schemes such as: (1) the Pradhan Mantri Garib Kalyan Package, launched in March 2020 as a response to the covid-19 pandemic, where a comprehensive personal accident cover was provided to healthcare workers; (2) the Pradhan Mantri Fasal Bima Yojana (PMFBY), the largest tech-driven crop insurance scheme in the world in terms of numbers of insured, launched in 2016 to protect farmers against crop losses including from natural disasters; and (3) affordable insurance schemes such as the Pradhan Mantri Suraksha Bima Yojana, which offers personal accident cover including for natural disasters, and Pradhan Mantri Jeevan Bima Yojana for life coverage in such instances.

Significant work is being done under the National Disaster Management Agency to dovetail all such schemes and other disaster-related ad hoc payouts and establish a uniform, forward-looking mechanism to provide insurance cover for all natural disasters. However, there is no legislative or executive direction mandating similar coverage for victims of floods, earthquakes or other calamities, leaving large sections of populations unprotected.

Emergence of parametric insurance

Recognising the limitations of traditional indemnity-based insurance, India recently began to explore parametric insurance as a potential solution for disaster risk management. Parametric insurance differs from conventional insurance in that it pays out claims based on predefined triggers such as a certain level of rainfall, wind speed or seismic activity, rather than actual loss assessment. This approach offers several advantages such as faster payouts, reduced administrative burden and greater transparency.

Conclusion

India’s exposure to natural disasters is an inescapable reality, and the economic and human costs are immense, yet the country’s insurance framework remains fragmented with low penetration, limited legal protection and a lack of comprehensive, objective mechanisms for compensation. Judicial interventions have been cautious, and government schemes are largely reactive and event-specific. What is urgently needed is a holistic, forward-looking approach anchored in legislation, supported by robust regulatory oversight, and informed by global best practices, to ensure that all Indians, regardless of where they live, have access to meaningful financial protection against the ravages of natural disasters.

This article was originally published in Asia Business Law Journal on 28 July 2025 Written by: Shailaja Lall, Partner. Click here for original article

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