India’s crop insurance system was built around droughts, floods and visible crop destruction. But farmers are increasingly facing a different kind of crisis with heatwaves – one where crops survive but they still suffer financial losses.
The impact on agriculture is becoming harder to ignore. Yet, most insurance products continue to revolve around rainfall deficits, floods, cyclones or total crop loss.
“Many crops survive, stay green and don’t technically fail but the extreme physiological stress causes yields to plummet by 25 to 30 per cent,” said Amit Goel, managing director of Knam Foods Pvt Ltd. “The farmer’s profit margin is wiped out by higher input costs and lower prices fetched for degraded produce,” he added.
How India’s crop insurance architecture works
Under Pradhan Mantri Fasal Bima Yojana (PMFBY), compensation is largely linked to yield assessment and notified crop losses at an area level.
Meanwhile, the Weather Based Crop Insurance Scheme (WBCIS) uses predefined weather triggers such as rainfall, humidity and temperature to determine payouts automatically.
The challenge, however, is that heat stress does not always translate into officially measurable “crop failure”.
According to government data, more than 110 million farmers have enrolled under PMFBY since its launch in 2016, while claims worth over ₹1.5 trillion have been paid.
Heat damage is gradual, not catastrophic
Unlike floods or hailstorms, heat damage is often cumulative. Crops may continue to stand in fields while suffering invisible physiological stress that reduces productivity, weakens nutrient absorption and lowers market quality.
“Heat stress often leads to flower dropping, poor nutrient absorption, lower crop productivity, and deterioration in overall produce quality,” said Satyajit Hange, co-founder of Two Brothers Organic Farms.
“In many cases, crops survive visually, but farmers still suffer financially because yields are reduced and market prices decline due to compromised quality,” he added.
Farmers say the economic impact extends beyond production losses.
Vikas Kumar, a farmer from Hazaribagh in Jharkhand, said crop quality can deteriorate by 14 to 18 per cent during heatwaves, while irrigation costs rise sharply. “As the quality deteriorates, the overall pricing of the crop falls down to over 50 per cent in some cases,” he said.
Are current heat thresholds outdated?
Insurance experts say one major challenge is that existing heat thresholds may no longer integrate today’s climate reality.
“Climate change has compressed the reliability window of historical data,” said Rajul Bhargava, a general insurance consultant. “Static thresholds can create gaps between what the policy promises and what the farmer actually needs.”
Bhargava added that while weather-linked products undergo periodic reviews, insurers are increasingly being forced to rethink how frequently indices should be recalibrated.
The concern is particularly relevant as crops that may have tolerated 38°C temperatures a decade ago are now facing repeated 42–45°C heat events across multiple days and nights.
Crops respond to timing, not just temperature
Insurance experts say another limitation is that crops respond differently depending on their stage of growth.
A heat spike during flowering or grain formation can cause disproportionate damage compared to similar temperatures at another stage of the crop cycle.
In effect, insurance systems often measure weather events, while crops respond to biological timing.
This makes it difficult to build one-size-fits-all heat triggers across geographies and crop types.
The problem of basis risk
Heatwaves also worsen what insurers call “basis risk” – situations where weather station readings do not accurately reflect actual on-ground losses.
A farmer may suffer heat damage without the nearest station crossing the threshold needed to trigger compensation, while another region may qualify for payouts despite lower on-field losses.
“Heat has greater spatial variability, it can differ dramatically even within a single district,” Bhargava explained.
He added that unlike rainfall, which benefits from a wider network of weather stations, heat modelling requires combining satellite observations, local agronomic data and historical loss patterns.
Tea’s inclusion shows a shift in thinking
The Centre’s recent step to include tea under weather-based insurance coverage has been welcomed by growers as recognition of rising climate-linked vulnerabilities in sensitive crops.
Tea plantations are particularly vulnerable to prolonged heat and erratic rainfall, both of which affect leaf quality and yield.
Industry observers say the decision may indicate a broader shift in how policymakers and insurers are beginning to view heat-linked agricultural risks, not merely as isolated weather events, but as systemic productivity threats.
Still, experts caution that expanding crop categories alone will not solve the deeper structural issues around heat-risk modelling and compensation.
Farmers are paying more to earn less
Farmers say heatwaves are increasing costs even when crops remain standing.
“During prolonged heatwaves and rising temperatures, crops require more frequent irrigation to survive, which increases water usage, electricity consumption, and operational expenses,” Hange said.
In many regions, farmers are also being forced to depend more heavily on groundwater extraction and additional labour for crop monitoring.
Goel said farmers are often spending 20 to 40 per cent more on irrigation and electricity merely to keep crops alive, only to receive lower prices later because of deteriorating quality.
“Since the crop technically survives, traditional insurance models don’t trigger payouts,” he said.
Why redesigning heat insurance is difficult
The biggest challenge is the lack of long-term, localised heat-risk datasets needed to build reliable insurance pools and price premiums accurately.
“The problem is the difficulty of creating risk pools for determining premiums,” said Professor Ashwini Chhatre, executive director at the Indian School of Business’s Bharti Institute of Public Policy.
“Heat-wave risk is a new threat for insurance purposes and there is not enough data to analyse,” he said.
Bhargava said insurers are already witnessing a rise in temperature-linked claims across parts of the sector. “Rising claims aren’t necessarily a problem — they’re data points that inform better coverage design,” he said, adding that the challenge is ensuring climate-linked losses translate into smarter products rather than simply higher premiums.
Chhatre added that India still lacks sufficiently granular predictive heat-risk models even at the city level.
“We don’t have good predictive models of the frequency and geography of heatwaves even at the city level. We are forced to react when it happens,” he said.
Gaurav Arora, chief commercial lines and motor (underwriting and claims) at ICICI Lombard, said heat stress is significantly harder to model than rainfall because it depends on multiple variables beyond temperature, including humidity, wind conditions and duration of exposure. “This multidimensional nature makes advanced modelling and granular data critical for accurate risk assessment,” he said.
Arora added that demand for heat-specific insurance products is gradually rising across vulnerable workforce groups, financial institutions and corporates as climate-linked risks become more visible.
That reactive structure is becoming increasingly difficult to sustain as heatwaves become more frequent and prolonged.
Goel argued that insurance eventually needs to evolve from post-disaster compensation to broader climate resilience financing.
“The current insurance architecture in India is largely reactive. It functions as a post-mortem of a failed season rather than an active survival tool for the agrifood supply chain,” he said.
Still, Chhatre cautioned against treating resilience financing and insurance as substitutes.
“We should do both,” he said. “Resilience financing is like a savings portfolio. Insurance is a hedge against external risk.”
As climate risks evolve, the challenge may no longer be protecting farmers only from visible crop destruction, but from the slower, less visible erosion of productivity and income caused by extreme heat.
And that, experts say, may require India’s crop insurance systems to rethink what agricultural loss actually looks like in a warming world.