Reinsurance
Product Family
James Martin

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Head of Client Management & Business Development, Americas

Water is the most abundant molecule on Earth. With more than 70 percent of the Earth’s surface made up of water, it’s easy to see why water is taken for granted. On the surface, it looks plentiful. But when we consider that 96.5 percent of the Earth's water is ocean, or saltwater, and only 2.5 percent of all the water on the planet is freshwater that is drinkable, we start to realize what a vulnerable resource water really is.

Put to the test
Recently, water supplies were put to the test. When the state of Texas was hit with uncharacteristically cold weather for the region, nearly 15 million people across the state lost access to clean water. If they had access to water, residents needed to boil their water due to safety concerns after the storm disrupted utility water supplies.

During the storm, blackouts forced water treatment plants offline. At the same time, freezing temperatures broke water mains, and people started to turn on their faucets to prevent their pipes from freezing, putting added pressure on the water system. Broken or burst water pipes in residential and commercial facilities were a big problem. Local homes, commercial facilities, and other infrastructure were not designed and built to weather the plunge in temperatures in a part of the country that rarely dips below freezing.

Texas’ widespread utility failures resulted in a domino effect that is not new. The crisis in Texas started with the electricity grid and moved to the water system. It happens in many disasters, as power failures lead to breakdowns in water systems, leaving residents without usable water. Extreme weather has impacted water access for days, months, or longer in many states following these events. After the devastating Camp Fire in Paradise, California, for instance, some 40,000 residents were initially told to boil their water after the fire. Later, carcinogenic chemicals were identified in the town’s pipes, and Paradise residents were told not to drink their water at all. More than six months later, residents’ water access was finally restored.
With the lessons already learned from these water crises in Texas and California, communities and lawmakers are looking at ways to boost their water resilience. The same storm that impacted Texas crossed over to many other states, including Mississippi where access to safe water was also impacted. The city of Vicksburg, Mississippi has already hired an engineering firm to evaluate and recommend how the city can detect problems in its water system earlier, better control the water pressure flowing to homes and businesses and find ways to increase the capacity at its existing water treatment plant.

In February, California State Senator Melissa Hurtado (D-Sanger) introduced the State Water Resiliency Act of 2021. This state legislation could provide up to $785 million to restore California's critical capacity water delivery infrastructure and contribute to the repair of other aging infrastructure, including roads and bridges. According to State Senator Hurtado, "This investment is critical for our country's food supply chain, public health, and ultimately the livelihoods of our farmworkers and families in rural communities. Restoring this infrastructure is essential to withstanding the long-lasting impacts of climate change while delivering clean, reliable, affordable water for hundreds of disadvantaged communities across California."

The climate change connection
Water is the primary medium through which we will feel the effects of climate change. Higher temperatures, or in the case of Texas and the Southwest, lower temperatures, and more extreme weather conditions have impacted rainfall, snowmelt, river flows, flood surges, and so much more, and often contributing to the further deterioration of water quality.

Extreme weather and natural disasters mean our already fragile infrastructure systems are faced with new, added performance pressures. As we’ve seen recently, they are not prepared to handle them. Hence, the need to boost our water resilience. Water resilience is about having a reliable water supply that can adapt and respond despite imposed changes or challenges.

According to data reported to CDP, a not-for-profit charity that runs the global disclosure system for investors, companies, cities, states, and regions to manage their environmental impacts, changes in precipitation and extreme drought were the most common physical risks of climate change. According to CDP’s 2020 Global Water Report, the cost of inaction on water risks is up to five times the cost of action. With substantial business opportunities to seize, companies need to rethink their strategies and transform their business models to build a water-secure world.

Water resilience is about having a reliable water supply that can adapt and respond despite imposed changes or challenges.

From a business perspective
All industries rely on water in one way or another. Water’s uses and effects are as varied as the business itself:

  • For food and beverage companies, water is an ingredient in the products they sell.
  • Agriculture companies are one of the biggest consumers of water in crop cultivation.
  • Cattle ranchers need water for their livestock.
  • Metals and mining companies require water for dust control, drilling, and slurry when transporting products.
  • The tech industry and its suppliers require ultrapure water for specific manufacturing processes, and data centers require water for cooling mainframes and other equipment.
  • The automotive manufacturing industry uses water in various processes, including surface treatment and coating, paint spray booths, washing/rinsing/hosing, cooling, air conditioning systems, and boiler use.
  • Forest-products companies need water for pulp and paper making.
  • Apparel manufacturers rely on water to grow raw materials, dye fabrics, and wash finished garments.

Companies operating in areas that may become water scarce are at risk of significant business disruption.

Since 2012, 'water crises' have consistently ranked in the World Economic Forum's Global Risk. Despite that, far too many companies are unaware of their exposure to water risks. And here is where we, working with many businesses across industries, could help get more conversations about water resilience started and see what we can actively do to help boost our clients' water resilience.

Taking an active role
Insurance companies may not use much water in day-to-day operations, but they are also being affected by water through increased claims related to water damage and disruption. Incidents of extreme weather have prompted us at AXA XL to ask ourselves and our clients -- what actions can the insurance industry take to help organizations better manage current and emerging water-related risks and build resilience?

Based on one-on-one conversations with AXA XL clients, we identified the following areas where we believe we could have an impact:

  • Raise the profile of the climate-water intersection.
    Water resilience and climate change are connected. We're committed to raising greater understanding by educating clients on the long-term trends in weather forecasting, water scarcity risks, and methods to protect water supplies and improve our clients’ water resilience.
  • Advocate for changes and proactive actions to build water resilience.
    We’re looking at ways to help bring together public and private sector organizations that are doing innovative water work. Working together, we’ll be better prepared to recognize risk mitigation taking place, share learnings, and arrive at finding effective water management solutions for our clients.
  • Support long-term planning for water resilience.
    We’re committed to supporting long-term water resilience planning by educating clients on the likelihood of their water risks and helping them prepare for low probability but high impact events.
  • Incentivize and recognize water resilience-building activities.
    Given the impact on many clients' operations, we may look at ways to better recognize/incentivize risk mitigation in our clients’ operations. For industries that are more intensive water users, we’ll look at ways to incentivize more sustainable water use.
  • Improve the quality/availability of data on water.
    We’re also looking at the possibility of creating a tool to help stakeholders better measure, tabulate and understand water-associated risks, including ranking their probability and severity. Alternatively, the tool that we envision could help analyze and highlight the benefits of different water resilience-building projects.

A joint effort
Tackling such a lofty and imperative risk is going to take a lot of open dialogue and collaboration. We're excited to have started these conversations, having one-on-one conversations with clients in the UK, US, and France, who represent various industries that rely on available water supplies. We also hosted a Water Resilience Roundtable that helped us flesh out our priorities – areas where we could contribute to helping empower risk managers and help our clients build their water resilience.

We’ve now established a Water Advisory Group, pulling together our clients, NGOs, and water institutes to provide expertise to support our water resilience work. These conversations will help direct the development of our products and services that can help our clients address their water risks.

Building resilience is at the very heart of what AXA XL does on a day-to-day basis. We help our clients rebuild, repair, and reboot their operations when something temporarily halts them or holds them back. We're intent on preparing our clients to address their potentially growing water risk. We know that companies that get ahead of their water risks will exhibit resilience when they need it most and will have a competitive advantage in whatever market they operate.

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In the US, the AXA XL insurance companies are: AXA Insurance Company, Catlin Insurance Company, Inc., Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Specialty Insurance Company and T.H.E. Insurance Company. In Canada, coverages are underwritten by XL Specialty Insurance Company - Canadian Branch and AXA Insurance Company - Canadian branch. Coverages may also be underwritten by Lloyd’s Syndicate #2003. Coverages underwritten by Lloyd’s Syndicate #2003 are placed on behalf of the member of Syndicate #2003 by Catlin Canada Inc. Lloyd’s ratings are independent of AXA XL.
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