How Climate Change Affects Car Insurance Premiums

Posted:

31 March,2025

Updated:

31 March,2025

0 min read

Climate change is now more than only an environmental problem. It also has unforeseen financial impacts on us, including potentially higher Car Insurance premiums. The frequency and severity of extreme weather disasters have grown, which puts Insurers at greater financial risk and raises policyholder expenses.

From flash floods in Mumbai to cyclones along the east coast of India, climate-related damages are making insurance claims more frequent and expensive. As a result, insurance companies are adjusting their pricing, policies, and risk calculations. But what does this mean for you as a car owner? Let’s break this down into specific details. 

Rising Car Insurance Costs Due to Climate Change

Increased frequency of natural disasters

Impact on claims

With severe weather conditions recorded on around 88% of days in 2024, India is seeing a marked increase in extreme weather occurrences. It suggests a clear and consistent increase over prior years. This alarming trend suggests that more vehicles are being damaged by severe and unpredictable weather patterns.

This is how the frequency of weather-related disasters is influencing the cost of Car Insurance:

  • More cars get damaged. Flash floods, storms, and landslides are causing significant damage to vehicles, resulting in a surge in insurance claims.

  • Insurers are paying more claims. As more vehicles sustain damage, insurance firms are forced to pay out more claims, which puts additional strain on their finances.

In order to compensate for increased payments, premiums increase. Insurers raise Car Insurance premiums for all policyholders, including those who haven't experienced losses directly, in order to cover higher risks.

As extreme weather worsens, insurers will keep on adjusting climate change insurance policies to reflect the growing risks.

 

Rising repair and replacement costs

Effects on premiums

It’s not just the frequency of claims that’s driving up Car Insurance premiums—it’s also the rising cost of repairs and vehicle replacements.

  • Climate disasters cause severe damage. Flooded roads can ruin car engines, hailstorms can dent body panels, and extreme heat can degrade batteries and tyres. Repairing climate-damaged vehicles often involves complex and expensive fixes.

  • Spare parts are getting costlier. Global supply chains have been disrupted due to climate change-related events like heavy rains, leading to delays and increased prices for parts.

  • Vehicle costs are rising. Since modern automobiles have more sophisticated safety and pollution control systems, replacing them costs more. Insurers are required to cover greater replacement costs if a vehicle is written off for climate-related damage.

Policyholders' Car Insurance premiums have risen throughout India due to insurers taking these growing expenses into account. Because of general market tendencies, you may still spend extra even if your car is well-maintained.
 

Regional risk assessment

Location-based premium adjustments

Indian insurers use a two-zone classification system to determine risk: Zone A and Zone B. In this model, Zone A refers to metro cities, which tend to have higher risks, while Zone B covers non-metro areas with comparatively lower exposure.

 

Zone A (Metro Cities):

  • Includes major urban centres like Mumbai, Delhi, Bengaluru, and Chennai.

  • These cities are subjected to intense monsoons, urban floods, and infrastructural issues, which typically result in more frequent and severe claims.

  • Extreme weather increases the risks due to the high vehicle density and severe traffic congestion, which raises Car Insurance premiums.

  • Due to this higher risk profile because of climate change, insurers hike insurance premiums more sharply.
     

Zone B (Non-metro Areas):

  • Encompasses rural and semi-urban areas with less severe weather incidences.

  • Insurers are able to provide more affordable premiums since lower risk results in fewer claims.

  • Policyholders in Zone B benefit from comparatively lower rates, making Car Insurance premiums more affordable in these regions.
     

Even if you have never filed a claim personally, living in a Zone A area may result in higher premiums due to the collective risk that insurers associate with metro environments.

 

Policy changes and adaptations

Insurance industry response

In order to meet the financial pressures resulting from climate change, insurance firms are modifying their policies.

  • Revised coverage terms: Policyholders may require extra riders and add-ons for complete protection as some insurers are implementing exclusions or restrictions for climate-related disasters.

  • Higher deductibles: In order to counteract growing expenses, insurers may demand that policyholders pay a greater percentage of the repair costs before coverage commences.

  • New climate-related add-ons: A few insurance companies now provide optional coverage intended specifically to guard against damages from extreme weather.
     

As climate risks continue to evolve, insurance policies will also adapt, making it essential for policyholders to carefully review their coverage options.

 

Consumer behaviour and awareness

Impact on purchasing decisions

With rising climate risks, car owners in India are becoming more proactive in their insurance choices.

  • More consumers are opting for comprehensive insurance. Since natural disasters are not covered by standard third-party insurance, more and more people are choosing plans that provide protection against storms, floods, and other climate-related occurrences.

  • There is an increasing awareness of location-based pricing. Policyholders are beginning to think about how climate risks affect their Car Insurance premiums when deciding where to reside.

  • Hybrid and electric cars are becoming more and more popular. The use of EVs is growing, but insurers now face additional difficulties due to climate-related hazards like water damage or overheated batteries.
     

As climate change worries grow, insurance buyers focus on plans that provide more protection, increasing demand for climate change insurance solutions.

 

Conclusion

Climate change has a tangible effect on Car Insurance premiums in India and is no longer a theoretical concern. As the frequency of extreme weather incidents increases, insurance firms are making changes to their risk assessments, coverage options, and rates.

This requires car owners to adjust to the new reality of insurance rates that are impacted by climate change. Your vehicles and money may be protected by carefully examining plans, taking climate risk assessment into account, and choosing comprehensive coverage.

Are you trying to find a policy that addresses climate risks? Shriram Car Insurance provides comprehensive protection against extreme weather events, including floods, hurricanes, and other natural catastrophes. No matter the weather, you can remain protected with affordable Car Insurance prices, beneficial add-ons, and a straightforward claims procedure. Explore our comprehensive policies today.

 

FAQs

1. How does climate change impact Car Insurance premiums?

Rising extreme weather events lead to more claims and higher repair costs, pushing insurers to increase premium rates.


2. Can my location affect how much I pay for insurance?

Insurance companies in India categorise customers into Zone A and Zone B. Zone A usually has higher Car Insurance premiums than the comparatively safer Zone B because of its increased risk resulting from high traffic density, extreme weather, and other hazards.


3. How can I reduce my climate change insurance premiums?

To reduce risks and receive discounts, install safety measures, choose larger deductibles, and keep a claim-free record.


4. Are there specific policies for climate-related damages?

No, there are no specific policies for climate-related damages available with Shriram General Insurance. The same are covered under our Own Damage and Comprehensive Car Insurance Policies.

Save up to 90% off on your car Insurance

Save up-to 90% off on your Car Insurance

Save up to 90% off on your car Insurance

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