How to manage the risks of water scarcity

By Günes Ergun ,

Engagement Manager, Marsh Climate & Sustainability Strategy

12/04/2023 · 3 minute read

Climate change is increasing the risk of a global water crisis

Already a quarter of the world’s population – some 2 billion people – lack access to safe drinking water, and water scarcity affects one in three of the world’s children. This number could increase to half the world’s population if the global temperature rise reaches 2°C above pre-industrial levels, according to the IPCC.

Often the problem is not physical water scarcity – where there is simply not enough water to meet demand – but economic water scarcity, where there could potentially be enough clean water, but lack of infrastructure means it does not get to the people who need it.

Climate change worsens water scarcity by increasing volatility in rainfall patterns, making supply less predictable. When rainfall is inadequate, groundwater is more likely to be extracted at an unsustainable rate. Supplies of clean water are often compromised by pollution from agriculture, industry, and poor sanitation infrastructure. Compounding the issue, inefficiencies and overconsumption mean that water often goes to waste.

A growing problem

Agriculture accounts for around 70% of water use globally. Industry is another major water user, from chemicals to textiles to semiconductors, while even some clean energy technologies like carbon capture and electrolysis can be relatively water-intensive.

UN SDG 6 calls for “universal and equitable access to safe and affordable drinking water for all” by 2030. Despite some patchy progress over the last decade, the problem of water scarcity is getting worse in many regions.

Meeting the SDG target on water security would require the overall rate of progress to be accelerated six-fold. In many regions this requires coordination across jurisdictions, and half the world’s countries lack such a framework. However, official development assistance commitments to water have fallen back from their peak in 2017.

Managing the risk of water scarcity

According to the World Meteorological Organization’s State of Global Water Resources 2022 report, around half the world’s water catchment areas are drier than their normal historical level. Water scarcity poses a “substantial risk” to around two-thirds of businesses globally, whether directly or through their value chain.

Parametric insurance based on water levels in a specified location can provide a straightforward way for a range of clients to manage the risk of a lack of water affecting their activities. Rather than needing clients to demonstrate the cost of the damage done to their business by water scarcity, parametric models pay out automatically when specified conditions are met.

Through its investment role, the insurance sector can also support the development of infrastructure and technology to mitigate the risk of water scarcity – from smart demand management to more efficient supply. Insurers are taking the lead in advocating for action on water scarcity – educating policyholders and the wider business community about the importance of water.

The stuff of life

Water is essential for sustaining life and the global economy. There is an urgent need for collective action. The insurance industry can play an important role by enabling financial resilience in the event of water scarcity, however it is. It is imperative the world does all in its power to ensure a water-secure future for all.

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How to manage the risks of water scarcity