Water and Risk

There is an interesting article just published by Risk Management Magazine entitled “Water, Water Everywhere … But Not Enough for Business.” Much of the information in the article is familiar to those who follow water issues, though increased public awareness is always a good thing. But, the article does address an interesting issue I have not seen discussed elsewhere – namely the impact water scarcity has on the insurance industry.

Many people reading this may think “so what?” Most people don’t think about insurance issues in their day to day lives. Yet insurance coverage, or lack thereof, can have a major impact on both individuals and businesses. Its availability can ameliorate catastrophe, and its unavailability can make a business venture impossible.

Insurance companies are experts at evaluating risk – or at least they need to be if they want to stay in business. As is made clear by the examples in the article, water scarcity is a risk that insurance companies need to start evaluating. All is not gloom and doom however. With every crisis comes opportunity, and water scarcity is no different. The article quotes Roman Hohl, an insurance director at Swiss Re who suggested that tradable water rights, “could be an opportunity for the insurance sector-insuring companies that have water rights but can't exercise them, for example.” I found this interesting given that a number of States in the American Southwest are already in the position have having more “paper rights” than available water.

Other than the insurance questions, the article discusses particular industry segments that make intensive use of water as well as some of the initiatives those in those industries have taken to reduce their water usage. Ms. Holdbrook leaves us with a question however, “All these efforts represent positive steps in overcoming the risks related to water scarcity. But are they enough?”

What do you think?