What Recent Mumbai Flooding Should Teach Us About Climate

NDTV

a day ago

'Unprecedented' and 'overwhelming' - those two words came up repeatedly in Mumbai Metro chief Ashwini Bhide's statement as she described how the railway utility's brand new Acharya Atre station on Line 3 was flooded after a downpour on May 27. The station had to be shut down for a while.
Bhide called the rain - 90 mm in 90 minutes - an extreme weather event, for which the company was underprepared. The station had become functional with about 45,000-50,000 passengers using the line, even though work was incomplete. Three of the six entry-exits were still under construction, and one of those close to a storm water system took the brunt of it as the downpour combined with high tide flooded the massive drains. About 1.1 million litres of water filled up in a pit, which overflowed to the concourse and tracks. A bund wall meant to keep water out was not designed for this kind of surge and was overwhelmed in no time.
While Mumbai was dealing with a deluge, a glacier collapsed in Switzerland, dumping mud and ice into a valley and burying the village of Blatten. Such was the quantity of rock, mud and ice that the slide caused a minor earthquake.
Why Current Forecasting Models Are Inadequate
Extreme weather events have become more frequent across the world and barely anyone is spared. Human decision-making is predicated largely on forecasting, even if it is merely a hunch. Otherwise it is driven by data, modelling and sundry other tools made available by modern science and technology. But already it is proving to be inadequate, and two and two are not adding up to four any more. Climate events are increasingly intense and whimsical than ever before, which is throwing calculations out of whack. It has unprecedented ramifications for businesses and the economy.
People in the north Indian plains were bracing for heat waves typical of the month of May when rains and thunderstorms struck repeatedly. Seas warming on both sides of peninsular India are causing freak weather patterns, bringing storms, hail and rains across the country. The monsoon arrived a full week in advance, a first in 35 years. The result is the third wettest May in 125 years, according to one report. What was expected to be a bumper season for the cooling industry turned out to be a damp squib, with inventories piling up and air conditioner manufacturers forced to scale back production. Soft drink and ice cream makers have also been hit by early rains.
Planetary Boundaries
Climate risks are well known even if there are skeptics in high offices such as the White House. It is also quite clear that we are unlikely to do enough to stop pushing the planetary boundaries (PB), a concept introduced in 2009 by Johan Rockström and a group of 28 well known scientists. Rockström was director of the Potsdam Institute for Climate Impact Research. The group proposed that there are nine PBs or critical processes that need to stay within safe limits to maintain a stable and resilient Earth. The collaboration, known as PBScience, created a framework to monitor the nine processes to provide an annual health check of the planet.
Their first report in 2024 found that six of the nine boundaries - which include fresh water, biodiversity, land systems change and climate - had already been crossed and were rapidly advancing towards the no-return zone.
Climate Insurance
The inability to accurately forecast weather events and the global political powershift in the developed world in favour of climate change deniers means developing countries will have to hunt for innovative solutions. For India, it could be insurance.
At a recent New Delhi event on rising atmospheric temperatures, a veteran of the insurance industry said that general insurers are finding it increasingly tough to underwrite climate risk as forecasting progressively becomes inaccurate. Yet, large-scale insurance cover is essential to address climate risks at a granular level.
Indians are by nature averse to paying for insurance as they see it as an unnecessary burden. Low per capita income and rising inflation act as a dampener too. In fact, insurance penetration in India fell in fiscal year 2023-24 to 3.7% compared to 4% the previous year and a global average of 7%. Given the circumstances, it is unlikely there will be takers for expensive climate risk insurance. Climate insurance could, however, be a public good, with the government sharing a big chunk of the burden, with the condition that beneficiaries will undertake measures that will help apply brakes on pushing PBs. For instance, an entire village along with its crops could be insured for flooding provided it agrees to shun single-use plastics and keep water bodies clean and unobstructed.
A Countrywide Policy
India already has a climate risk insurance for farmers in the form of the Fasal Bima Yojana to protect against loss of crops. Several companies offer parametric insurance, but these are largely restricted to farming and related sectors. There is a need to design a countrywide scheme for businesses, beginning with MSMEs. The Kerala government introduced a general insurance scheme two years ago for MSMEs where the government pays half the premium. But it is an industrial sop with no nudge to act to build climate consciousness and sustainability. Less than 15% of MSMEs in India have any sort of insurance.
A publicly funded insurance scheme with in-built incentives for adoption of auditable climate friendly policies could perhaps help move the needle a wee bit. For instance, property developers in flood prone areas could get covers at steep discounts if they help protect natural water channels in and around their sites. Same for manufacturing units and industrial parks that help restore and maintain local ecological balance or improve water tables. Those which come up with innovations could be rewarded with free insurance. With smart innovations, such giant group insurance schemes will also bring down the cost of cover.
For context, the 15th Finance Commission had allocated Rs 1.28 lakh crore - Rs 98,000 for the centre and the rest for states - for five years ending 2026. States spent Rs 18,322 crore and the centre gave Rs 4,371 crore as relief in the wake of floods, landslides and storms in 2024-25, the Parliament was informed in March 2025. Yet, these sums are inadequate as projections are conservative and do not appear to account for the intensifying nature and higher frequency of calamities.
CAT Bonds
To reduce the burden on the taxpayer, laws could be amended to allow reinsurers to issue catastrophe bonds, a financial innovation introduced after large claims in the wake of Hurricane Andrew in the US in 1992 bankrupted eight insurers. Known as CAT bonds, reinsurers sell them through special purpose vehicles (SPV), offering high interest rates and a typical maturity of three to four years. They can be linked to the likely occurrence of specific events or regions and are usually offered to highly sophisticated investors, such as pension and sovereign funds. The SPV invests the money raised in government bonds and earnings are passed on to investors. If the tenure of the bond passes without incident, the investors stand to earn very good returns as well as get the principal back. However, if calamity strikes and claims have to be settled, investors could lose some or all of the principal. CAT bonds help reinsurers spread the risk and reduce the burden on taxpayers.
CAT bonds' popularity is rising with the increasing frequency of extreme climate events and investors' search for higher returns. The global CAT bonds market was valued at $50 billion in 2024 and returned 17% that year. The first CAT Bond exchange-traded fund, Brookmont Catastrophic Bond ETF, started trading in April 2025 although it got caught in the US President Donald Trump's tariff storm.
A well designed public insurance scheme for businesses could not only compensate for sudden losses but also act as an effective nudge to enforce sensible behavioural changes in public spaces and businesses - even homes.