The 2022 heatwave experienced in South Asia resulted in the hottest March on record in the Indian subcontinent since 1901. Because of this extreme weather event, India endured more than 200 days of heat waves in 2022. This was five times more than the 36 days experienced in 2021 and twice as many heatwave days as in 2012, the previous record year. Climate change made the 2022 heatwave around 30 times likelier than otherwise anticipated. As a result, this pre-monsoon hot season, which runs from March until early June, was one of the most economically disruptive.
Prolonged exposure to extreme heat can have a significant impact on people’s lives and livelihoods as well as economic activity – particularly in core sectors such as agriculture. Between 2000 and 2019, South Asia had over 110,000 heat-related excess deaths a year. Economic activity is severely affected too: India loses around 101 billion man-hours annually to heat. By one estimate, extreme heat and humidity could cost India’s economy US$150 – 250 billion (around 4 per cent of GDP) by 2030. Weather-dependent sectors are particularly impacted. Agriculture becomes impossible as temperatures exceed 40 degrees Celsius: as photosynthesis stops, so does any crop growth. In 2022, wheat harvest was lower by 15 per cent in India, while livestock perished too.
For the country’s dairy sector, responsible for nearly a quarter of the world’s milk production, rising temperatures risk reducing milk output by up to 25 per cent by 2085. Dairy comprises nearly a quarter of the country’s agricultural GDP – and providing adequate insurance is an important way of protecting the livelihoods of the 80 million farmers that work in the sector. India’s hot summer months typically lead to a dip in milk productivity and while farmers’ input for their animals may remain the same, milk output can decrease by up to 30 per cent.
To protect dairy farmers from milk yield losses, IBISA Network, an agricultural insurtech, launched an insurance product that compensates farmers for economic losses due to heat stress on their animals. This stress yield index insurance product pays out based on rises in temperature during India’s summer months. The daily temperature is measured using satellite data from the Indian Meteorological Department. Around 40 years of historical data were used to calculate the expected maximum temperature for specific areas. If the actual temperature measure remains above this value for five consecutive days, this is considered a heat wave and will trigger the index.
As with most inclusive insurance products, distribution relies on partnerships. IBISA Network partnered with three different organisations for this product (Figure 1): the Malabar Regional Co-operative Milk Producers Union (MRCMPU), a milk cooperative in Kerala; Stellapps Technologies, a tech firm that provides technology-related interventions in the dairy sector; and Godrej Agrovet, a food and agricultural conglomerate. The Agriculture Insurance Company of India Limited (AIC) was involved in underwriting the MRCMPU product, while the HDFC ERGO General Insurance underwrote the latter two. As of May 2023, results from the MRCMPU show a claims ratio demonstrating that the product works and adds significant value when there is a heat wave.
Figure 1: Product enrolment by partner
Partner name | Number of animals insured | Claims ratio |
MRCMPU | 14,500 | 280% |
Stellapps Technologies* | 7,500 | - |
Godrej Agrovet* | 400 | - |
Total | 22,400 | - |
Source: IBISA Network
*Policy period not yet complete.
Targeting farmers through partnerships meant that aggregators or co-operatives that work with dairy farmers would be protected too. Every year, milk co-operatives across India typically lose over 3 million tonnes of milk because of the impact of heat on productivity. For this product, the partners are responsible for deducting premiums from payments to farmers for their milk. This means that no farmer “pays out of their pocket”.
"Revolutionising the way we manage the impact of climate change on vulnerable sectors, such as agriculture, is at the heart of IBISA's mission. With the heat index product, we aim to empower India's dairy farmers by providing them with an affordable and effective solution to tackle heat-related milk yield losses. Our partnership with key local entities leverages technology and local knowledge, safeguarding not just the farmers but also the co-operatives, aggregators and indeed the nation's economy against the adverse effects of extreme weather. Together, we are helping to create a more resilient and sustainable agricultural landscape for India's future." Maria Mateo, CEO of IBISA Network |
IBISA Network’s strategy for the product is based on three pillars:
Insurance is already being used to mitigate extreme heat in South Asia, based on an existing product: weather index insurance (WII). WII products are designed to trigger an automatic payment to insured farmers in the event of insufficient or excessive rainfall. Borrowing from this idea, a heat index insurance pilot was launched in India to support low-income women in urban areas during the summer of 2023. Excessive heat can make it unsafe for millions of home workers to work. For a premium of US$2 per month, women can protect themselves against a few days of lost income due to extreme heat. Both types of heat insurance offer millions of people the opportunity to improve their resilience to the impact of climate change, while protecting their lives and livelihoods in the process.