Having battled natural disasters almost on an annual basis in recent years, Kerala has asked the Union government to consider instituting ‘catastrophe bonds’ as protection against disaster-linked losses.
The request is part of Kerala’s wish list for Union Budget 2026-27 presented by State Finance Minister K.N. Balagopal at the pre-Budget consultation convened by Union Finance Minister Nirmala Sitharaman in New Delhi on Saturday.
Catastrophe bonds, or CAT bonds as they are also called, are insurance-linked securities that transfer the financial risks from natural disasters from the bond issuer to the capital market. At present, the financial risk is fully borne by the State or Central governments, potentially affecting the financial outlays for other government programmes.
“At present, any State would find it tough to raise at short notice sums in excess of ₹2,000 crore for disaster relief. If the Centre can institute catastrophe bonds, they would prove helpful to States in the event of natural calamities,” Mr. Balagopal told The Hindu on Sunday.
Global scene
Globally, countries such as Mexico and the Philippines have been using CAT bonds to protect themselves against disaster-linked losses. In Kerala, catastrophe bonds and their potential had found mention in ‘The Guideline for Risk Informed Master Plan’ approved by the Kerala government in June 2022. “Risk transfer may be obtained through insurance policies or capital market instruments such as catastrophe bonds. The insurance and reinsurance sectors are the main sources of risk transfer, although capital markets provide an alternative source,” the document had noted.
In recent years, Kerala has remained vulnerable to floods and landslides during the monsoon months, with the most severe examples being the back-to-back floods of 2018 and 2019 and the July 30, 2024, Wayanad landslides.
Fund for coastal areas
Mr. Balagopal, in his presentation on Kerala’s Union Budget expectations, has also urged the Centre to establish a Coastal Resilience Fund for covering the construction of seawalls, flood mitigation and the restoration of mangroves along coastlines. The southern State has also been battling coastal erosion along its 590-km coastline.
“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,” Mr. Balagopal had said in his presentation.
Published – January 11, 2026 06:55 pm IST
