Insuring water: a practical risk management option in water-scarce and drought-prone regions?

Abstract

Recurrent water deficits in various arid and semi-arid Mediterranean basins are largely covered by illegal groundwater abstractions uncontrolled by the water authorities. Aquifers thus play the role of buffer stocks and are used by farmers as a reliable, although informal, insurance system. This has led to continuous groundwater depletion and increased scarcity and drought risk over the last few decades. An effective solution to this problem requires the replacement of this spontaneous, informal and uncoordinated insurance scheme with a formal and planned system that can be coordinated with the objective of reducing overexploitation. In this paper we develop a methodology to estimate the fair risk premium and the potential water savings associated with drought insurance for irrigated agriculture. This method is illustrated with its application to the Campo de Cartagena Agricultural District in the Segura River Basin (Spain). Results show that although the potential for illegal abstractions is high (9.5 hm 3 /year), the cost of the insurance system is ten times lower than the amount that risk-averse farmers are willing to pay for water security. This information may serve as the starting point for the design of a drought insurance system able to cope with other relevant institutional challenges.

Partnerships for disaster risk insurance in the EU

“…Public intervention may also interfere with market equilibriums and undermine, rather than encourage individual risk reduction (Surminski et al, 2016). Managing the trade-offs between public policy objectives and market mechanisms poses serious technical, operational and coordination challenges (Pérez-Blanco and Gómez, 2014). Reconciling the public and private roles and objectives in the PPPs necessitates a thorough analysis and organization.…”

The Water Abstraction License Regime in Italy: A Case for Reform?

“…Proactive drought management instruments being used elsewhere, such as (incremental) water pricing [46], temporary trading of water rights [15,39,47], drought insurance [48] or even drought management plans [49], rely on flexible, consistent and sustainable WAL regimes that are currently non-existent in Italy. A WAL reform is imperative to define the main framework for planning and programming activities with a long-term water security perspective whose aim is to move away from an emergency approach to drought to a proactive and ongoing one.…”

Dealing with drought in irrigated agriculture through insurance schemes: an application to an irrigation district in Southern Spain

“…Despite the fact that several experts consider crop insurance an inefficient management tool (Glauber & Joseph, 2013;Wright, 2014), it has expanded in recent years into many developed and developing countries (Bielza et al, 2008). Meteorological drought risk has traditionally been considered as a non-insurable risk because of its systemic character, which means that large losses are registered contemporaneously over vast areas (Pérez & Gómez, 2014). Nevertheless, rainfed crops have recently been covered against drought by private insurance, owing to public sector support (e.g., Spain, Austria, Canada and the USA) (Bielza et al, 2008).…”

“…On the contrary, existing agricultural insurance typically does not provide coverage against hydrological drought in irrigated agriculture (Maestro & Bielza, 2011;Pérez & Gómez, 2014). In the USA drought is covered by the Multiple Peril Insurance Coverage (MPCI) program.…”