India’s capital expenditure on infrastructure expansion has crossed 3% of GDP, reflecting the country’s push to accelerate economic growth through investments in railways, highways, ports, power plants and airports. However, many of these large, long-lived and geographically fixed assets are being developed in regions that are highly vulnerable to climate impacts and extreme weather events, raising concerns about their long-term resilience. Rising climate risks may be outpacing the country’s ability to insure these assets, exposing governments and investors to increasing financial stress, a new report has warned.

The report highlights that climate impacts in India are no longer isolated or sporadic. Instead, there has been a clear upward trend in both the frequency and severity of such events, with a sharp acceleration observed since the mid-2010s. Hydro-meteorological disasters now dominate the country’s climate risk profile, with flooding emerging as the most persistent and widespread hazard for capital-intensive infrastructure such as urban assets, highways, ports and hydropower projects, contributing to repeated losses and rising insurability concerns.

Titled, 'Climate Risks and Insurance for India’s Infrastructure', the repotrt prepared by Climate Trends says that while most of India remains within insurable limits, insurers have flagged growing concerns around hydropower projects, highways and urban infrastructure located in high-risk regions.

According to the study, increasing uncertainty from climate impacts is making accurate risk pricing more difficult, potentially widening the protection gap between economic losses and insured coverage. The authors engaged with leading insurers including SBI General Insurance, Munich Re India, Swiss Re India and the General Insurance Corporation of India.

“India’s push for large investments and sustained high growth must account for the rising frequency, severity and geographical spread of climate impacts. Growing exposure of essential infrastructure assets could lead to mounting climate-induced losses and fiscal pressure, underscoring the need to integrate climate resilience into infrastructure planning from the outset, alongside advanced actuarial models and standardised frameworks for risk disclosure, premium pricing and loss assessment,” Aarti Khosla, founder and director of Climate Trends, said.

An analysis focused on Delhi illustrates the growing mismatch between urban development and climate exposure. While the city expanded at an annual rate of about 1.3% between 1986 and 2016, its flood exposure increased at a much faster, non-linear rate of approximately 2.46% per year. “This divergence is projected to widen further, suggesting that climate risk is rising disproportionately as asset concentration increases. As climate impacts become increasingly predictable, some regions could approach a threshold of uninsurability,” say the findings.

The report highlights that global insured property losses exceeded USD 140 billion in FY 2024–25, while India’s natural catastrophe losses reached USD 12 billion in 2023, well above the previous decade’s average. Sub-nationally, Assam, Andhra Pradesh, Odisha, Uttarakhand, Himachal Pradesh, parts of Ladakh, Sikkim and the north-eastern states were identified as the most vulnerable.

Despite this, some of India’s largest infrastructure investments totalling Rs 2.95 lakh crores are located in these regions, including port projects in Odisha and Andhra Pradesh, highways and tunnels in Himachal Pradesh, hydropower projects in Sikkim, Ladakh and Arunachal Pradesh, and major road projects in high-altitude and landslide-prone areas.

Insurers surveyed in the report said climate risk is now a core concern for long-term profitability, even as climate insurance is viewed as a key growth area. All insurers reported that existing models do not adequately capture evolving climate risks, while two-thirds noted rising premiums since 2015 and widespread affordability challenges for infrastructure projects, particularly hydropower assets. While parametric and climate-responsive products are expanding, coverage gaps remain for risks such as cloudbursts and landslides.

Overall, the paper examines India’s increasing exposure to extreme weather events and the constraints faced by insurance providers, even as efforts continue to expand non-life insurance penetration from its current level of around 1%. It says  that climate risk must be treated as a primary factor in safeguarding infrastructure expansion and, by extension, long-term economic growth and self-sufficiency. While current capital expenditure may be increasing government contingency risk, proactive dialogue, improved risk modelling, and standardised loss assessment and reporting could address a significant portion of the challenge.