Rising Climate Risk Drives Up Insurance Costs
Insurance premiums for critical infrastructure in the Himalayan region, including hydropower plants, roads, and bridges, are poised for an increase. This shift follows the devastating floods triggered by a glacier collapse along the Nepal-Tibet border on August 26, 2024. According to Mint, insurers and reinsurers are currently reassessing the region’s climate exposure, with final pricing contingent on the availability and cost of reinsurance capacity.
The recent disaster has compounded existing concerns. Reinsurers are evaluating the latest losses alongside previous major events, including the 2023 Sikkim glacial lake outburst flood (GLOF) and the 2013 Uttarakhand floods and landslides. This cumulative risk profile is driving a more cautious approach to underwriting in the region.
Recent Rate Increases and Market Response
The impact of these risks is already visible in market rates. Shivanshu Thaplyal, partner in the energy, infrastructure, and resources team at Khaitan & Co, noted that insurance rates for roads and bridges rose from 0.43 per thousand of the sum insured to 0.52 per thousand following the 2023 Sikkim disaster. This represents an approximate 21% increase.
An executive from a state-run hydropower company highlighted that GLOF risk has become an explicit component of insurance formalities since the 2023 Teesta V disaster. Initially, global reinsurers showed reluctance to provide cover in FY24 after geomapping revealed similar glacial conditions across the Himalayas. However, coverage was eventually secured through negotiations, albeit at a higher cost.
Impact on Hydropower Projects
The financial implications vary by project type. The same executive indicated that reservoir-based hydropower projects may not face significant changes in insurance costs following the Nepal floods. In contrast, run-of-the-river projects are expected to see increased insurance costs and more rigorous reinsurance negotiations.
Data from major public sector undertakings reflects this upward trend. NHPC incurred Rs 2,557.13 crore in insurance expenses between FY22 and FY26. Notably, its insurance expenses jumped 72% in FY26 to Rs 1,058.68 crore, up from Rs 613.63 crore in the previous year. Similarly, insurance expenses at SJVN and THDC increased by 14% and 22%, respectively, in recent years. A THDC executive attributed part of this increase to the addition of new assets, including a 1,000 MW pumped-storage project and a 1,350 MW thermal plant.
Broader Infrastructure and Future Trends
For build-operate-transfer (BOT) road projects, insurance premiums are typically borne by developers or operators as part of concession agreements. Zafar Khan, president of the Highways Investors Association, stated that the frequency of insurance claims and natural perils has increased, impacting project economics.
Experts suggest that the insurance market may respond through higher deductibles, specific peril exclusions, and tighter underwriting conditions. Thaplyal added that parametric insurance, which pays a pre-agreed amount when specific conditions are met, could become more relevant as climate-risk modelling improves. However, an insurance executive noted that it is too early to estimate precise pricing for the coming years, as it depends on reinsurance demand and capacity.
Contextualizing the Risk
The August 2024 floods resulted in significant loss of life and infrastructure damage. Reuters reported that nearly 1,200 people were killed and thousands were missing, with over 11 hydropower plants swept away. Commercial insurance losses were estimated at more than $132.3 million by Oriental Insurance Co Nepal.
These events occur against a backdrop of recurring disasters in the Himalayas. According to the OECD’s Economic Outlook for Southeast Asia, China and India 2025, India lost an average of about 0.4% of its GDP annually to disasters between 1990 and 2024. The region has witnessed major floods, landslides, cloudbursts, and GLOFs in Uttarakhand, Himachal Pradesh, Sikkim, and Nepal in recent years, underscoring the persistent climate risk facing infrastructure investments in the area.