Why water scarcity is the most ominous weather risk today
‘Extreme weather was deemed the number one global risk in terms of likelihood in this year’s World Economic Forum Global Risk Report. It also came second in terms of most impactful risks.
While hurricane and quake may be the first to come to mind, one of the most ominous threats on the horizon is drought – and many around the world are already on the verge of a water shortage crisis.
Drought is impacting a large proportion of the global population and it is known to lead to migration. To this end, urbanisation – either due to drought or for other reasons – is also putting pressure on water supplies (particularly in countries with weak infrastructure), and this will lead to water shortage in the future. Currently an estimated 4.3bn (71%) experience at least one month a year of water scarcity.
But this is not just impacting the general populations; businesses are also heavily impacted by water shortage, particularly agriculture with 70% of freshwater resources being used in agriculture – and most of that going on raising livestock.
Furthermore, according to the World Bank, the impact of water scarcity is set to decrease global GDP by 6% by 2050. Many business owners are sitting up and taking notice of this growing problem.
Specialist insurer Excessweather chief executive John Warwick says while many businesses will also be affected by water shortage, particularly around business continuity and processes, the sector facing the brunt of this peril is agriculture.
“The utilities tend to hedge their output so they know what price they’re going to make a long time in advance. Certainly, from a drought point of view, the biggest sector would be agriculture. In the second and third world countries it’s a major issue. The developed world probably has more irrigation and more sophisticated irrigation systems, and backs up their water needs a lot better.”
ACR’s Gerhardt also believes that the root of the problem could be tackled head on with a parametric approach
With agriculture being the sector most vulnerable to water shortage, crop insurance is imperative to managing potential drought, but Zurich points out that coverage sometimes has a blind spot.
Commenting on its US provision, a Zurich representative says: ““The Federal Crop Insurance Program covers loss due to drought. However, the farmer has to have a reasonable expectation that they are going to be able to grow a crop before it’s planted, for it to be a covered loss. So, if the farmer normally irrigates, policyholders must have adequate facilities and adequate water, or the reasonable expectation of receiving adequate water at the time coverage begins, to carry out a good irrigated practice. If policyholders knew or had reason to know that their water may be reduced before coverage begins, no reasonable expectation exists.”
One approach to plugging these gaps in coverage is to mitigate the risk in the first instance. Innovation is taking place in this area, and the insurance industry will need to play a key role from a mitigation standpoint.
There are a number of technologies for mitigation currently being developed, with many (re)insurers exploring and investing in these technologies, while developing products to support the peril.
Asia Capital Re (ACR) group chief executive Hans-Peter Gerhardt says: “I think there’s a couple of aspects where reinsurers can indeed play a role. The first and most obvious one is on the asset side of the house. More and more insurers and reinsurers, especially the larger ones, are discovering infrastructure investments as an asset class, and investing in projects that address expected water shortage situations, such as desalination plants. It’s an area where the reinsurer as a very large investor can play a role.”
Indeed, it’s not only the tier 1 firms investing in this way. Renewable energies such as wind and solar are being explored in the Middle East in a major way, and with the high levels of baseload power generation hybrid solar and wind projects can provide, desalination is also being explored. In Saudi Arabia, desalination facilities have already been established, and these new innovations in energy provision and desalinated water generation are catch the eye of some of the key players in the region. Trust Re for one has become a beacon for exploration in the area.
ACR’s Gerhardt also believes that the root of the problem could be tackled head on with a parametric approach.
“You can indeed cover drought, either insuring the farmer or for his specific exposure and paying him indemnity if the harvest didn’t come through. Or you can do a parametric model, where all you do is measure rainfall, and depending on the lack of rainfall, you can pay an insurance policy and the insurance pay-out follows the progressive lack of rainfall.”
This approach also negates the need for ‘reasonable crop expectations’.
Gerhardt adds that the “parametric product works very well in regions where you don’t have very reliable on the ground data”, and where it’s very hard to measure actual loss on the ground. This makes it a prime solution of many rural areas in developing countries.
“With a parametric product you can cover very wide regions just using satellite data that measures rainfall.”
Parametric solutions to this problem are offered by a number of the firms, including Swiss Re, Endurance, ILS provider Nephila, and parametric solution specialist Excessweather.
Excessweather chief executive Warwick explains: “The policies that we issue have no relationship with the amount of water stockpiled by the policyholder, it is purely on the amount of rainfall and temperature during certain periods. Also, in certain areas, crops need rainfall at particular times and no rain at other times.”
He adds: “What we indemnify for is not the business interruption, but rather the loss of profits. We’re not necessarily interested in whether you’ve lost your crop on not, it’s purely predicated on the weather. It’s a parametric approach, but in an insurance policy – it’s not a derivative, it’s an actual insurance policy.”
Excessweather has been running for 4 years, and is the brainchild of John Warwick, who also works for a Bermudian hedge fund operating in this space, ILS Capital Management.
Warwick adds: “In three countries we are now talking to banks who are lending money to small farmers for seed for example. The banks are then insuring that the farmer gets the yield that he needs and then includes that into the price. Whilst it’s a bank assurance policy, it’s also government controlled as well.”
Whichever way you slice and dice it, Rainfall is still the crux of this discussion when it comes to water scarcity. As Gerhardt expresses: “Even if you have very good irrigation systems, the irrigation system only transports water from one place to another – it still assumes that you have water.”
And with all the measures in place, the weather is something that cannot be controlled. In short, it’s time to brace ourselves.
"Ucheleweshaji wa maji ni hatari kubwa zaidi ya hali ya hewa leo, na hali ya hewa ya hali ya juu imechukuliwa kuwa hatari ya kwanza ya kimataifa katika suala la uwezekano katika ripoti ya ""Uhatara wa Ulimwenguni"" ya Mkutano wa Kiuchumi wa Dunia." Pia ilikuja ya pili katika suala la hatari zenye athari nyingi. Ingawa vimbunga na matetemeko ya ardhi yanaweza kuwa ya kwanza kuja akilini, moja ya vitisho vyenye kutisha zaidi kwenye upeo wa macho ni ukame <unk> na wengi ulimwenguni tayari wako kwenye ukingo wa mgogoro wa upungufu wa maji. Ukame unaathiri idadi kubwa ya watu duniani na unajulikana kusababisha uhamiaji. Kwa kusudi hili, mijini - ama kwa sababu ya ukame au kwa sababu nyingine - pia ni kuweka shinikizo juu ya usambazaji wa maji (haswa katika nchi na miundombinu dhaifu), na hii itasababisha upungufu wa maji katika siku zijazo. Kwa sasa, takriban watu bilioni 4.3 (71%) wanakabiliwa na upungufu wa maji kwa angalau mwezi mmoja kwa mwaka. Lakini hii haikuwa tu kuathiri idadi ya watu kwa ujumla; biashara pia ni sana kuathiriwa na upungufu wa maji, hasa kilimo na 70% ya rasilimali za maji safi kutumika katika kilimo na zaidi ya kwamba kwenda juu ya kufuga mifugo. Kwa mujibu wa Benki ya Dunia, ukosefu wa maji utapunguza Pato la Taifa kwa asilimia 6 kufikia mwaka 2050. Wamiliki wengi wa biashara wanakumbuka tatizo hilo linalokuwa likiongezeka. Mkurugenzi Mtendaji wa kampuni ya bima ya Excessweather, John Warwick, amesema biashara nyingi zitathiriwa na upungufu wa maji, hasa katika shughuli za biashara, lakini sekta inayokabiliwa na hatari hiyo ni kilimo. <unk>Mashirika ya huduma huwa na hedge pato lao hivyo wanajua nini bei wao <unk>ni kwenda kufanya muda mrefu mapema. Kwa hakika, kutoka kwa mtazamo wa ukame, sekta kubwa zaidi ingekuwa kilimo. Katika nchi za ulimwengu wa pili na wa tatu ni suala kubwa. "Kama vile nchi zilizoendelea zina mifumo ya umwagiliaji maji ya hali ya juu na ya hali ya juu, ""A.C.R. Gerhardt pia anaamini kwamba chanzo cha tatizo hilo kinaweza kushughulikiwa kwa njia ya parameteric, na kilimo ni sekta inayoathiriwa zaidi na upungufu wa maji, bima ya mazao ni muhimu kwa usimamizi wa ukame wa uwezekano, lakini Zurich inaonyesha kwamba chanjo wakati mwingine ina sehemu kipofu. """ Akizungumzia utoaji wake wa Marekani, mwakilishi wa Zurich anasema: <unk> Programu ya Shirika la Bima ya Mazao inashughulikia hasara kutokana na ukame. Hata hivyo, mkulima lazima kuwa na matarajio ya busara kwamba wao ni kwenda kuwa na uwezo wa kukua mazao kabla ya kupandwa, kwa ajili yake kuwa hasara kufunikwa. Kwa hivyo, ikiwa mkulima anairiga kawaida, wamiliki wa bima lazima wawe na vifaa vya kutosha na maji ya kutosha, au matarajio ya busara ya kupokea maji ya kutosha wakati chanjo inapoanza, kutekeleza mazoezi mazuri ya umwagiliaji. Ikiwa wamiliki wa bima walijua au walikuwa na sababu ya kujua kwamba maji yao yanaweza kupunguzwa kabla ya chanjo kuanza, hakuna matarajio ya busara. Ubunifu unafanyika katika eneo hili, na sekta ya bima itahitaji kucheza jukumu muhimu kutoka kwa mtazamo wa kupunguza. Kuna teknolojia kadhaa za kupunguza hatari zinazotengenezwa kwa sasa, na wawekezaji wengi (wa) wa bima wanachunguza na kuwekeza katika teknolojia hizi, wakati wa kuendeleza bidhaa za kusaidia hatari. "Hans-Peter Gerhardt, mkurugenzi mtendaji wa Asia Capital Re (ACR), alisema: ""Nafikiri kuna mambo kadhaa ambapo wawekezaji wanaweza kuchukua jukumu." Ya kwanza na ya wazi zaidi ni upande wa mali ya nyumba. Wauzaji wengi wa bima na bima, haswa wale wakubwa, wanagundua uwekezaji wa miundombinu kama darasa la mali, na kuwekeza katika miradi inayoshughulikia hali za kukosekana kwa maji, kama vile mitambo ya desalination. Ni eneo ambapo reinsurer kama mwekezaji mkubwa sana inaweza kucheza jukumu. Kwa kweli, si tu kampuni za ngazi ya kwanza kuwekeza kwa njia hii. Nishati mbadala kama vile upepo na jua zinatumiwa katika Mashariki ya Kati, na kwa viwango vya juu vya uzalishaji wa umeme wa msingi, miradi ya umeme wa jua na upepo inaweza kutoa, desalination pia inachunguzwa. Saudi Arabia tayari imeanzisha vifaa vya desalination, na uvumbuzi huu mpya katika usambazaji wa nishati na uzalishaji wa maji ya desalinated unashika macho ya baadhi ya wachezaji muhimu katika mkoa huo. Trust Re kwa ajili ya moja imekuwa beacon kwa ajili ya uchunguzi katika eneo hilo. ACR Gerhardt pia anaamini kwamba mzizi wa tatizo inaweza kushughulikiwa kichwa juu na mbinu parametric. <unk>Unaweza kweli kufunika ukame, ama bima mkulima au kwa ajili ya mfiduo wake maalum na kumlipa fidia kama mavuno hakuwa kuja kupitia. Au unaweza kufanya mfano parametric, ambapo wote wewe kufanya ni kupima mvua, na kulingana na ukosefu wa mvua, unaweza kulipa sera ya bima na malipo ya bima ifuatavyo maendeleo ukosefu wa mvua. Gerhardt anaongeza kwamba "bidhaa ya parameter inafanya kazi vizuri sana katika mikoa ambapo huna data ya kuaminika sana juu ya ardhi", na ambapo ni vigumu sana kupima hasara halisi juu ya ardhi. Hilo hufanya iwe suluhisho bora la maeneo mengi ya mashambani katika nchi zinazoendelea. "Kwa bidhaa ya parameter, unaweza kufunika maeneo makubwa sana kwa kutumia data ya satelaiti ambayo hupima mvua. "" Suluhisho la parameter kwa tatizo hili linatolewa na makampuni kadhaa, ikiwa ni pamoja na Swiss Re, Endurance, ILS mtoa huduma Nephila, na mtaalamu wa suluhisho la parameter Excessweather." "Mkurugenzi Mtendaji wa Excessweather, Warwick, alielezea: ""Sera ambazo tunatoa hazina uhusiano wowote na kiasi cha maji yaliyokusanywa na mteja wa sera, ni tu juu ya kiasi cha mvua na joto wakati fulani." "Kama ilivyo kwa maeneo mengine, mazao yanahitaji mvua wakati fulani na wakati mwingine hayana mvua, ""aliongeza: ""Kile tunachotoa fidia sio kwa sababu ya kukatika kwa biashara, bali kwa sababu ya kupoteza faida." Sisi si lazima nia ya kama wewe wamepoteza mazao yako juu ya si, ni tu predicted juu ya hali ya hewa. "Hii ni ""mfano wa kuvutia"" wa kuvutia, na kwa sababu ya kuvutia, ""Excessweather"" ni moja ya mifumo ya uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji wa uendeshaji." Warwick anaongeza: <unk>Katika nchi tatu sasa tunazungumza na benki ambazo zinawapa wakulima wadogo mkopo wa pesa kwa mbegu kwa mfano. Benki huamua kuwa wakulima wanapata kiasi cha nafaka wanachohitaji na kisha huingiza katika bei. Wakati ni sera ya dhamana ya benki, pia inadhibitiwa na serikali pia. Kwa njia yoyote unayoipunguza na kuipunguza, Mvua bado ni kiini cha majadiliano haya linapokuja uhaba wa maji. "Kama Gerhardt anavyosema: ""Hata kama una mifumo nzuri sana ya umwagiliaji, mfumo wa umwagiliaji unasafirisha maji tu kutoka mahali moja hadi pengine, bado unadhani kuwa una maji."" Na kwa hatua zote zilizopo, hali ya hewa ni kitu ambacho hakiwezi kudhibitiwa." Kwa ufupi, ni wakati wa kujitayarisha.