Earth Day 2025: Climate Change, Environmental Risks And Importance Of Fire Insurance

Not long ago, climate change was considered a future concern. That future, however, is now our present. Rising sea levels, extreme weather patterns, and shifting ecosystems are no longer distant possibilities. They are visible and measurable realities of today.

As per the World Economic forum risk report 2025, extreme weather events are second most severe global risk in the next two years, but they are deemed to be the most severe risk. Environmental risks have intensified in both frequency and impact over the past decade, with the greatest deterioration expected over the next 2 to 10 years.
 
India, too, is witnessing the growing impact of climate change. According to the India Meteorological Department (IMD), the country's average annual temperature has increased by around 0.7°C between 1901 and 2018, which is approximately half the global average rise. Nevertheless, India is experiencing longer and more intense heatwaves than ever before. In May 2024, Gujarat's temperature had crossed a scorching 46 degrees. As we mark Earth Day this April, it's a timely reminder that environmental risks are not only global but also deeply local.

Contrary to popular belief, climate change doesn't just affect outdoors, it equally impacts the interiors of the buildings. Prolonged exposure to high temperatures causes materials like concrete, asphalt, metal, and roofing to expand and contract repeatedly. Over time, this thermal stress can lead to cracks, weakened structures or even critical damage. In older buildings, or those with aging or substandard wiring, the risk is amplified as overheating can trigger electrical failures, appliance malfunctions or fires.

Take Delhi for example. During the peak summer months from April to June, fire service calls in Delhi doubled compared to the same period in 2023. In such scenarios, intense heat is more than just uncomfortable, it's a ticking hazard.

Protecting your business from climate-change related incidents
For businesses, the risks are even higher. Environmental changes have reduced the return period for losses. For example, if the flood in a particular region had a return period of 30 years, it has reduced to 5-7 years. In Delhi itself, there was a flood in 2023 and 2021 - i.e., every 2 years, whereas the last time the capital was flooded was in 2013. The return period reduced from 8 years to 2 years. This is all an impact of climate change, leading to a greater need for property/fire insurance.

Whether it's a commercial building, apartment, or standalone house, property insurance can provide vital financial protection from unforeseen events like fire and Acts of God (floods, earthquakes, storms, etc.). Specifically, fire insurance compensates for losses arising from fire-related incidents. Fire-related accidents can lead to structural damage, inventory loss, equipment failures, and long-term disruptions in operations.

What does fire insurance cover?
Fire insurance typically covers loss or damage to buildings and structure, office equipment and furniture, machinery and equipment used in manufacturing, inventory or stock stored on the premises, electronic devices and technology infrastructure, electronic devices, pipeline located inside or outside the compound, business interruption losses due to fire related incidents. 

In case of a fire incident, the policyholder receives reimbursement or repair cost for the damage. Fire insurance covers several perils including fire, lighting, explosion, aircraft damage, act of god events, landslide, and bush fire. Businesses can also customise their fire insurance to add additional perils like earthquakes, forest fires and spontaneous combustion etc. 

Types of fire insurance policies
In India, you can buy three types of fire insurance policies:

-    Industrial All Risk - This is an All risk policy catering to very large industrial units
-    Standard Fire & Special perils Policy - A named-perils policy that offers coverage against specific risks.
-    Bharat Laghu Udyam Suraksha and Bharat Sookshama Udyam Suraksha - Policies covering small and medium units, where wordings are drafted to suit the specific requirements of such industries.

These policies are structured to provide a standardised, transparent and cost-effective solution for businesses.

What is not covered in the policy?
There are some common exclusions under these policies that you must know about -

Deliberate damage: Losses resulting from deliberate acts by the insured are not covered.

War and war-like operations: Damages due to war, invasion, or similar events are excluded.

Missing or mislaid property: Losses related to missing properties aren't covered.

Leakage of electricity: Damages resulting from electrical leakage are not covered.

Pollution or contamination: Damages from pollution or contamination are not covered.

Consequential or indirect losses: Indirect losses resulting from a fire incident are typically excluded.

Unoccupied premises: If the insured premises remain unoccupied for more than 30 days, certain losses may not be covered.

Short-circuit damages: Damage to items that short-circuit is not covered, though resulting fire damage might be.

As temperatures continue to rise, so does the risk of fire incidents. Therefore, it becomes important for businesses to be well prepared in advance to mitigate the financial impact of such events. Investing in a fire insurance policy is one critical way to ensure financial protection. Before buying a policy, businesses must thoroughly evaluate their needs, understand policy types and make a choice. 

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