Kerala urges Indian government to issue cat bonds to protect against disaster-linked losses

With the Indian state of Kerala remaining highly vulnerable to numerous types of natural disaster events, the state has reportedly asked the countries Union government to consider issuing catastrophe bonds in order to help provide protection against disaster-linked financial losses, according to a report from The Hindu.

Readers may recall that there have been recent calls for India to develop its own regulatory framework for insurance-linked securities (ILS), including catastrophe bonds.

In August 2025, the panel, the Working Group (WG), which consists of industry experts, particularly within Alternative Risk Transfer (ART) arrangements, published a report that outlined how the International Financial Services Centres Authority (IFSCA) can play a crucial role towards making India a hub for cat bonds.

During a panel event in late 2025 which explored how reinsurance strategies can expand insurance access in India, Mahipal Reddy, Executive Director, IFSCA, GIFT City, Gujarat, also suggested that the analytical framework already set in place for catastrophe bonds and insurance-linked securities (ILS) will drive the popularity of parametric solutions, and ultimately help close India’s protection gap.

With Kerala having battled natural disasters almost on an annual basis in recent years, it shouldn’t come as too much of a surprise that the state has now asked its Union government to consider instituting catastrophe bonds to help give the state a form of financial protection against disaster-linked losses.

According to The Hindu, the request is part of the state’s list of priorities for its Union Budget for 2026 – 2027, which was recently raised by State Finance Minister K.N. Balagopal during the pre-Budget consultation meetings for the budget in New Delhi on January 10.

Additionally, Kerala publication Onmanorama reported that during his speech, Balagopal particularly highlighted the state’s repeated exposure to floods, landslides and coastal erosion, as the Minister outlined how innovative financial instruments like catastrophe bonds are essential to ensure rapid post-disaster recovery without destabilising public finances.

Additionally, the Minister also proposed the creation of a Coastal Resilience Fund in order to support the construction of seawalls, flood mitigation, and the restoration of mangroves along coastlines.

“Climate resilience and green growth are essential for long-term sustainability. Kerala’s vulnerability to climate risks makes it a natural pilot for national resilience programmes,” Balagopal explained during his presentation.