Mint ·
Himalayan infra projects brace for a climate risk premium
New Delhi: The catastrophic Nepal-Tibet floods in August could make infrastructure across the Himalayas more expensive to insure, as climate change reshapes the region’s risk profile. If the past is any indication, there could be a spike coming up: insurance rates for roads and bridges had risen about 21% after the way less severe 2023 Sikkim glacial lake outburst flood (GLOF) disaster. Insurers and reinsurers are now assessing the likely rise in premiums, according to three people aware of the development.
Climate change is making infrastructure in the Himalayas increasingly expensive to insure due to the rising incidents of flash floods, landslides, and glacial lake outburst floods. The 26 August Nepal disaster has triggered brainstorming among insurers and reinsurers to work out the extent of the damage and also what it means for risks across the region, according to three people aware of the development.
Insurers say the final premium pricing for such projects in the Himalayan region will depend on the availability and cost of reinsurance capacity, against the backdrop of the latest calamity as well as the earlier ones such as the 2023 Sikkim glacial lake outburst floods (GLOFs) and the 2013 Uttarakhand flash floods and landslides pushing up premiums.
The frequency of crippling natural calamities has risen due to climate change, according to companies' annual reports and experts. On an average, India's annual disaster-related hit was about 0.4% of GDP between 1990 and 2024, according to the OECD’s Economic Outlook for Southeast Asia, China and India 2025.
Insurance costs are rising for ‘run-of-the river’ hydropower projects—which use a river’s natural flow with little or no water storage—and other infrastructure projects such as roads. For instance, state-run NHPC incurred ₹2,557.13 crore in insurance expenses over the last five fiscal years from FY22 to FY26, with insurance premiums swelling to ₹1,058.68 crore in FY26, 72% more than ₹613.63 crore in FY25, an analysis of its annual reports showed. Other state-run hydropower firms SJVN Ltd and THDC Ltd saw 14% and 22% jump in insurance expenses, respectively, in recent years.
"The addition in the 1,000 MW pumped storage project and the 1,350 MW of thermal power plant has also led to an increase in overall insurance cost of THDC," said a THDC executive on condition of anonymity.
Road asset operators said insurance claims have become more frequent as climate change-led risks, including erratic weather, rising temperatures, unprecedented heavy rainfall, flash floods, have become more common.
“Since the incident in Teesta V in Sikkim in 2023, a new term has come in the insurance formalities, GLOF. After that, premiums have increased," said an executive with a state-run hydropower firm and one of the people cited above requesting anonymity. "In FY24, there were some issues in terms of reinsurance as the global insurers who generally take up these reinsurances were reluctant as geo-mapping showed glaciers across the Himalayas in a similar condition, making reinsurers wary that projects in other Himalayan states of India would also be impacted. However, reinsurances were provided after intensive deliberations, but at a higher cost.”
“Now, post the unfortunate incident in Nepal, we do not expect hydro projects with reservoirs to witness a major impact. But the insurance cost for run-of-the river projects will increase, and as witnessed post the 2023 incident in Sikkim, reinsurances may have to be negotiated much more rigorously,” the executive added.
The 26 August flood triggered by a glacier collapse along the Nepal-Tibet border swept away over 11 hydropower plants and destroyed roads and other infrastructure, killing nearly 1,200 people, with thousands reported missing, Reuters reported on 4 September. While final estimates are not yet out, the commercial insurance losses are pegged at over $132.3 million, the report said, citing the chief executive of Oriental Insurance Co Nepal, an arm of the New Delhi-based insurer.
While the cost of insurance premiums for hydropower companies is borne by the company itself, insurance premiums for roads and highways are a crucial part of concessionaire agreements in build-operate-transfer (BOT) projects, wherein asset developers or operators bear the cost.
Road asset operators said that the increasing frequency of climate-related events is changing the risk landscape.
“Natural perils have definitely increased, and with this, the frequency of insurance claims has also increased,” said Zafar Khan, president of industry lobby group, the Highways Investors Association.
He said alternative products, such as parametric insurance, could become more relevant as climate-risk modelling improves. Parametric insurance offers a pre-agreed payout, instead of a sanctioned claim post-incident.
“The clearest evidence for roads and bridges comes from the insurance market's response to the 2023 Sikkim disaster. Following the event, insurers reportedly increased the applicable rate for roads and bridges from 0.43 per thousand of the sum insured to 0.52 per thousand, an increase of approximately 21%,” said Shivanshu Thaplyal, partner in the energy, infrastructure, and resources team at law firm Khaitan & Co.
Insurance premium hikes are not the only way of covering climate risk, with insurers also keeping the option of higher deductibles, exclusions from particular perils, and more stringent underwriting conditions in the policy terms, added Thaplyal.
Insurers say premiums rise if the demand for insurance rises, with assessment of the recent Nepal floods still ongoing.
“It will be very early to predict anything at this stage. However, we are closely monitoring each and every situation, particularly developments in the reinsurance market and the demand for reinsurance capacity. There may be chances of an increase in insurance premiums depending on how demand evolves. We have seen a surge in demand for reinsurance, and if this trend continues, premiums could go up,” said a top executive at an insurance firm, adding that "it would be premature to give any specific estimate for the coming years.”
India's property and casualty insurance market was estimated at $39.3 billion in 2026, according to Mordor Intelligence, with the figure including several lines beyond infrastructure insurance.
The Himalayan region has witnessed a slew of floods, landslides, cloudbursts and GLOFs in recent years, including major events in Uttarakhand (2013), Himachal Pradesh (2023), Sikkim (2023) and Nepal (2024 and 2026).
“These issues get aggregated and the cumulative effect is very negative... Insurers notice these incidents. For them, it is like one single Himalayan region, which they think is becoming fragile,” said A.K. Singh, a hydrologist and an adjunct professor at IIT Roorkee.
“Insurance premium depends on the risk perception. After the GLOF incident in Sikkim in 2023 and even the massive floods and landslides in Uttarakhand in 2013, the insurance premiums increased. If insurers feel risk has increased, the premiums will also increase,” added Raj Kumar Chaudhary, former chairman and managing director of NHPC.
NHPC operates 18 hydropower projects totalling 7.1GW across the Himalayan region in Jammu & Kashmir, Ladakh, Himachal Pradesh, Uttarakhand, Sikkim and Arunachal Pradesh.
Queries emailed to the ministries of power as well as that of environment, forest and climate change, NHPC, SJVN, THDC, National Highway Authority of India (NHAI), reinsurer GIC Re on 13 September remained unanswered till press time.
“Climate change is affecting the Himalayan region today. It will also affect coastal regions—low-lying regions—with rising sea levels," said Vinayak Chatterjee, co-founder and managing trustee of the The InfraVision Foundation, an infrastructure think tank.
"So, in the future, due to inland droughts, rising sea levels, and other such climate change-related phenomena, insurance premiums will also rise for infrastructure assets in these regions, such as roads, bridges, toll plazas, and any other infra,” he said.