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WATER SCARCITY AND INSURANCE - FOOD FOR THOUGHT. Water scarcity is a headline favorite in African continent and beyond. Water scarcity affects every continent, and around 1.2 billion people or almost one-fifth of the World’s population live in areas of physical scarcity. Another 1.6 billion people face economic water shortage. Water scarcity is among the main problems to be faced by many societies in the 21st Century. Water use has been growing at more than twice the rate of the population in the last century, and although there is no global water scarcity as such, an increasing number of regions are chronically short of water. Fresh water has been a constant and essential companion of human beings throughout history. In modern times, we have risked even greater dependence by adopting means of wealth creation characterized by huge demand and consumption of water. Industry accounts for 22% of fresh water use, the largest share being consumed in the energy sector.

It is also used in great quantities for cooling in thermal and nuclear power generation as well as in the extraction of coal and oil. Water is also used in Agriculture and food production. The agricultural sector today accounts for the largest of fresh water consumer at about 70%. The dynamic expansion of food production, often described as the green revolution has been achieved through modern farming methods which require high input of water. Households consume the remaining small share of 8% but demand the highest quality standards for safe drinking. A report by the World Economic Forum says that lack of water, will soon tear into various parts of the global economic system and start to emerge as a headline geopolitical issue. The Financial crisis gives us a stark warning of what can happen if known economic risks are left to fester. We are living in a water bubble as unsustainable and fragile as that which predicated the collapse in World Financial Markets. The close dependence of Industry and Agriculture on freshwater ensures that any scarcity is likely to cause upward pressure on food and energy prices. This is the scenario that strikes fear into political and economic leaders struggling to restore economic health. Prudent stewardship of water cycle is never the less virtue honored more in breach than in observance. News headlines provide constant reminders of this failing. It might be more constructive to protect the water cycle on which we depend. If governments can observe the principles of freshwater sustainability and equitable distribution, then there is more than sufficient knowledge, technology, and water itself to meet every body’s needs.

The impact of water (in various forms of ice, snow, hail, storm etc) in terms of damage to property has long been an insurable peril/s. In Fire Insurance, flood and damage caused by water are covered. In CAR/EAR Policies, unseasonal weather conditions, causing unseasonal rains that lead to unfavorable outcomes is covered under natural catastrophes. Water is known to cause a lot of damage through flood, seepage, Leakages and when used as an extinguishing agent to put off a fire and there is adequate Insurance protection from these caiuses.. As natural commodities go, water is perhaps the most important, but least valued of them all. We know how much we pay for the energy, how much we pay at the fuel pump for the petrol to fill our cars, but water, well, how much does it cost? At a commercial level, (the brewing and distilling companies, Soft Drink Manufacturer etc. ) businesses are better acquainted with the cost of their water, as well as the potential impact of supply interruptions. However, they are still a long way away from overcoming issues around these interruptions and the growing problem of water scarcity that will eventually aggrevate. Each and every product on our shelves today has water in them or has gone undergone through a process where water is used. Globally, there has been a move to conserve forests and plant more trees to generate more water and water conservation is all being encouraged. This is all in a bid to conserve the water we have and make sure it is appropriately rationed to ensure all our personal and commercial needs can be met in the long run. Whether through usage restrictions driven by drought or scarcity through over use and poor management, any interruption in water supply have a massive impact on virtually all commercial entities. Hydroelectric companies that have to reduce output due to unusually low rainfall in their dam’s catchment area will experience decline in their revenues. Population is growing rapidly and the number of mouths to feed in increasing. This means food production has to double. The key to achieving this is water. At the current rate of overuse/mismanagement, we will run out of water long before we run out of oil. According to a recent report on water scarcity, the World’s fresh water resources could meet all our needs if they were distributed evenly.

However, this is not the case as water supplies in some regions are too limited to meet local needs, while other regions lack the requisite infrastructure to deliver water to those that need it. Even states that are water secure today will confront challenges to water and by implication food security in the future, due to climate changes and water shortages elsewhere. In short a reduction in water supply is one of the biggest future threats facing business across the globe. Interruptions in water supply could see companies cutting their productions, increased prices, and price volatility leading to usage restrictions. Here at home, whenever dams dry up, the cost of electricity automatically goes up and the food prices follow suit. The challenge facing business is therefore numerous when it comes to water. They have to secure the supplies they currently have, evolve their processes to use less water in the future and make their organizations more resilient to the growing threat of scarcity and supply interruption. The Insurance Industry, with their expertise in Risk Management, is the obvious place to look for answers to these problems. The Insurance products available in the market today do not however overcome the issue of water scarcity.

They help protect against damages caused to individuals and businesses by unusual weather conditions, but they do not solve the issue of increasing demand in the face of failing supply. For each region and for individual business, the challenge will be to identify exactly where the risk around water lies. After this is identified, then the need to carry a cost benefit analysis around the mitigation factors will be necessary. Whatever the possible solutions arrived at, the major factor has to comprise a reduction in water usage. The Insurance Industry will have to come up with products that will mitigate the Risk of water scarcity, and the measures to control the Risk. This article has been authored by The Training Manager.

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