Assessment of Brazilian Water Utilities' willingness to pay for index-based insurance against hydrological extremes

Código

I-EBHE0060

Autores

Greicelene Jesus Da Silva, Heidi Kreibich, Andrea Cominola, Marcos Roberto Benso, Eduardo Mário Mendiondo

Tema

WG 1.03: Urban Water - Urbanization phenomenon & adequate water management

Resumo

Water utilities are frequently hit by droughts and floods, which can jeopardize the reliability of their continuous water supply, cause loss of revenue, and damage their infrastructure. Aiming to help utilities hedge the impacts of these hydrological extremes, index-based insurance, a type of insurance contract that is customized based on the exposure of a water utility, and the payout is set as a fixed amount based on a predetermined index threshold value (e.g., water-level or streamflow), is receiving increasing interest in research and practice. In this study, we develop a structured survey to investigate the interest of water utilities in purchasing index-based insurance. Our survey first provides information on how index-based insurance works. It is followed by questions about the water utility's experience with drought and flood impacts, and their willingness to pay for index-based insurance. In this preliminary study, we interviewed experts from 10 Brazilian water utilities including autarchies, mixed economy, and private enterprises, responsible for the water supply in 30 municipalities in the southeast region of the country, overall serving 5% of the country's population. Most of our respondents (8 out of 10) declared a positive willingness to purchase the insurance scheme proposed for floods, with an average willingness to pay quantified as 1.8% of their yearly revenue. Half of them would purchase the drought insurance scheme, willing to pay an average of 1.2% of their revenues. The reasons declared for no interest in the insurance were related to the lack of occurrence of floods or droughts in their municipality, the disagreement with the proposed ?trigger? value for the drought, the type of financial losses covered, or the availability of other water supply sources that can compensate for temporary disruptions. We did not find a significant difference between regional and local companies nor between providers with different legal statuses (mixed, private, or autonomous). A more comprehensive survey, which is targeting over 1400 water utilities to obtain coverage of responses from across Brazil, is currently underway. The results of this survey are expected to give a clearer understanding of the willingness of Brazilian water utilities to pay for indexed-based insurance and to support the creation of a register of drought and flood impacts on water utilities, both important steps to enable the implementation of index-based insurance schemes in practice.