News Excerpt:

Nagaland has made history by becoming the first Indian state to adopt the Disaster Risk Transfer Parametric Insurance Solution (DRTPS).

What is Parametric Insurance?

• Parametric (Index Based)  insurance is a type of insurance that provides payouts based on the occurrence of a specific event, such as an earthquake, flood, or cyclone, rather than covering the actual loss incurred. 
• The payout is triggered when a predefined threshold, such as earthquake magnitude, wind speed, or water depth, is met or exceeded. 
• This insurance is designed to provide quick financial relief, as it relies on objective, measurable parameters rather than loss assessments. 
• The threshold is typically set to align with a client's risk tolerance and business continuity plans, influencing the insurance premiums.

About the DRTPS:

• The DRTPS aims to protect Nagaland's critical infrastructure and reduce economic losses resulting from extreme weather events. 
• A Memorandum of Understanding (MoU) signed between the state government of Nagaland and SBI General Insurance, marking a significant step towards enhancing disaster resilience.
• DRTPS is especially relevant in the context of an increase in extreme weather occurrences caused by climatic change. 
• The vision of the scheme is to provide financially resilient and safe livelihoods for sustainable development. 

Components of the Agreement:

• The MoU, signed by officials from SBI General Insurance and the Nagaland State Disaster Management Authority (NSDMA), covers the entire state.
• Under this arrangement, the state government will be responsible for paying the insurance premium.
• In the event of a disaster, the insurance will provide financial support to mitigate the impact, ensuring protection for the state's infrastructure and livelihoods from 2024 to 2027.

The DRTPS is seen as a crucial tool in creating financially resilient communities and fostering sustainable development. By implementing this solution, Nagaland sets a precedent for other states to enhance their disaster preparedness and response mechanisms.