The sun shone brightly on the enormous Indian market, where Kamlaben Ashokbhai Patni sat fretting over the brass jewelry on display at her wooden kiosk.
The metal blackens as the temperature rises. Plastic pearls come loose.
“The color of the jewel starts to fade as it gets hotter, making it worthless and akin to junk,” remarked the 56-year-old mother of four on a late April day when temperatures in the western city of Ahmedabad hovered at 38 degrees Celsius (100 degrees Fahrenheit).
Climate change drove heat in the city to a record-breaking 48C (118F) in 2016. Last year, it peaked at nearly 46C (114.8F).
Such high temperatures could mean a hit to business. But Patni is now among 21,000 self-employed women in Gujarat state enrolled in one of the world’s first insurance schemes for extreme heat, launched this month by nonprofit Arsht-Rock Foundation Resilience Center in partnership with microinsurance startup Blue Marble and a trade union.
If temperatures climb high enough above historical averages and linger there for three days, she’ll receive a small payout to help cope and compensate lost income.
While traditional insurance can take months to pay, with so-called “parametric” insurance there is no need to prove losses. It can pay within days of a trigger being reached – a predetermined threshold beyond which conditions are considered extreme. Payments can be set to things like wind speeds or rainfall.
This form of disaster assistance is on the rise across the developing world, as vulnerable communities are hammered by worsening drought, storms and heatwaves.
But with climate change happening faster and causing more damage than scientists had predicted — and too little money being spent on protecting populations — such projects could struggle over the longer-term, according to more than 20 industry experts consulted by Reuters.
Reinsurer Swiss RE reported that sales of parametric product jumped 40% between 2021 and August 2022. Insurance analysts at Allied Market Research estimate the market, valued at $11.7 billion in 2021, could reach $29.3 billion by 2031.
At annual climate talks in Egypt last year, nonprofits urged richer nations to help finance parametric insurance as a way of compensating victims of worsening weather extremes.
It is still somewhat niche “but it’s growing,” said Ekhosuehi Iyahen, secretary general of the Insurance Development Forum, an industry-led group that promotes insurance for non-traditional markets.
The past year has seen new products rolled out across Latin America, Africa, and Asia-Pacific. The U.N. Capital Development Fund, for example, recently developed parametric policies for Vanuatu, Tonga, and Fiji covering cyclone damage.