Addressing Critical Insurance Gaps in India’s EV, Solar and Hydro Expansion

As the world moves to decarbonise its economies, the insurance industry must move away from reactive underwriting and develop proactive risk architecture. Legacy models utilising past loss data are no longer relevant, given the degree of climate change variability we are experiencing now and the rapid advancement of technology.

March 24, 2026. By News Bureau

Tags:

articles

Jigar Parekh

EDME Insurance Brokers

Hydro Expansion

Solar energy

EVs

Clean energy transition

The clean energy transition in India has reached its critical implementation stage. The Ministry of New and Renewable Energy reports that India achieved 272 GW of non-fossil fuel capacity by end of January 2026, with solar power generating over 140 GW. The government has transformed its 500 GW non-fossil capacity target for 2030 from a policy goal into an active infrastructure development project. As per the India EV Market report prepared by India Energy Storage Alliance, the total EV sales in India reached 2.30 million units in the year 2025. There has been an increasing investment in electric vehicle production, battery development, as well as solar energy projects and pumped hydroelectric facilities, which has been receiving support via production-linked incentives and other central and state government policies.

However, risk transfer mechanisms has not advanced at the same rate as asset development. The insurance industry still uses its original motor and property insurance models, which stemmed from internal combustion engine systems and traditional thermal power plants. The operational challenges faced by battery-powered vehicles and solar parks located in natural environments and hydro facilities that depend on climate conditions force real-world tests of policy terms, sub-limit, and indemnity systems. The issue has evolved from a concern about underwriting specifics into a problem that impacts balance sheets. The strategic challenge for developers, fleet operators, and infrastructure investors requires them to create insurance systems that must match the rapid energy changes that India faces.

Emerging Battery Liability Challenge in EVs

The introduction of electric vehicles (EVs) presents new structural challenges that change motor underwriting fundamentally. The most significant exposure is to the battery pack, generally the highest cost (approximately 40-50 percent of the vehicle's initial price). However, most standard motor insurance policies do not cover or explain EVs, as they were designed with traditional internal combustion engine (ICE) depreciation models.

Current EV claims statistics show a shift away from traditional systems, where the frequency of EV accidents falls within the same range as ICE, but the severity of the claims continues to escalate exponentially. For example, if the underside of a vehicle is damaged, where the battery casing is located, the risk of thermal runaway will be increased, often necessitating replacement of the entire battery. Because insurance policies only provide coverage to the insured declared value (IDV), repairing or replacing the battery may result in the car being a “constructive total loss.”

Additionally, there is currently no guidance on how to calculate depreciation on the batteries, meaning EV policyholders are left with high costs to replace batteries that have reached the end of their life. Furthermore, the liability coverage for issues surrounding charging infrastructure is less consistent since they often fall into a grey area between commercial property liability and motor vehicle liability, and, therefore, expose those working in the EV charging industry to localised flame risks.

Strengthening Risk Architecture for Solar Infrastructure

Traditional property insurance policies do a good job in protecting against the damage to physical property, but they have critical gaps in providing coverage against extreme weather events or degraded performance of assets, especially solar plants, where risk complexity is increasing at a rate that exceeds the rate at which traditional property insurance coverage is evolving. Solar parks have been experiencing significant adverse impact due to climate change, which has altered historical weather patterns, such as severe hailstorms and unseasonal cyclones that can cause micro-cracking of photovoltaic panels. This leads to reduced power output and irreversible efficiency loss in the long run for the solar modules which if not covered properly might fall outside the scope of a traditional property insurance policy.

Consequently, the financial consequences from the energy yield shortfall resulting from such events are borne solely by the project owner.

Additionally, indemnity period under the conventional business interruption (BI) coverage is also limited to twelve months that do not consider the volatile nature of the global supply chain and the time required to replace specialised components, which has increased the time required to put renewable energy systems back to operation, and therefore, has left the domestic insurance market reluctant to provide longer-term BI coverage options.

Hydropower Expansion Amid Growing Climate Uncertainty

Pumped and hydropower act as a necessary base-load supplier when combined with intermittent solar generation. However, the primary hydro sources in India are located within the climate-sensitive Himalayan range. The complete breakdown of the Teesta Stage III Dam in Sikkim from a GLOF exemplifies the current vulnerabilities in insurance coverage. These vulnerabilities stem from standard construction and operation insurance policies, which have restrictive sub-limits for geological risks. Due to restrictive payout limits, when a catastrophic event occurs, many developers find their payouts are limited to a fraction of their total losses and face extremely high unrecoverable debt, which significantly exposes their balance sheets.

Third parties are not typically covered under traditional property or damages coverage; this represents a serious oversight in the regulatory framework for large-scale infrastructure projects. Catastrophic flooding of downstream ecosystems and displacement of communities by sudden dam breaches are common occurrences, demonstrating the need for dedicated environmental impairment liability coverage that should be an integral part of standard project finance.

Architecting Future-Ready Resilience

As the world moves to decarbonise its economies, the insurance industry must move away from reactive underwriting and develop proactive risk architecture. Legacy models utilising past loss data are no longer relevant, given the degree of climate change variability we are experiencing now and the rapid advancement of technology.

Accomplishing this requires innovative, forward-thinking solutions, incorporating the shift by the industry to use parametric insurance products to pay for renewable property damage based on predetermined weather parameters rather than through protracted claims processes. Electric mobility will also require the use of real-time telematics in order for insurers to be able to underwrite battery performance dynamically. In conclusion, the ability to secure India's green infrastructure will require innovative, resilient, and tailored risk transfer products to match the approved technologies being financed.

- Jigar Parekh, Director – Public Sector, Metals/Mining, Renewables, Roads, EDME Insurance Brokers