Multi-Year Index-Based Insurance for Adapting Water Utility Companies to Hydrological Drought: Case Study of a Water Supply System of the Sao Paulo Metropolitan Region, Brazil
The sustainability of water utility companies is threatened by non-stationary drivers, such as climate and anthropogenic changes. To cope with potential economic losses, instruments such as insurance are useful for planning scenarios and mitigating impacts, but data limitations and risk uncertaintie...
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| Format: | Article |
| Language: | English |
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MDPI AG
2020-10-01
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| Series: | Water |
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| Online Access: | https://www.mdpi.com/2073-4441/12/11/2954 |
| _version_ | 1797550183449362432 |
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| author | Diego A. Guzmán Guilherme S. Mohor Eduardo M. Mendiondo |
| author_facet | Diego A. Guzmán Guilherme S. Mohor Eduardo M. Mendiondo |
| author_sort | Diego A. Guzmán |
| collection | DOAJ |
| description | The sustainability of water utility companies is threatened by non-stationary drivers, such as climate and anthropogenic changes. To cope with potential economic losses, instruments such as insurance are useful for planning scenarios and mitigating impacts, but data limitations and risk uncertainties affect premium estimation and, consequently, business sustainability. This research estimated the possible economic impacts of business interruption to the Sao Paulo Water Utility Company derived from hydrological drought and how this could be mitigated with an insurance scheme. Multi-year insurance (MYI) was proposed through a set of “change” drivers: the climate driver, through forcing the water evaluation and planning system (WEAP) hydrological tool; the anthropogenic driver, through water demand projections; and the economic driver, associated with recent water price policies adopted by the utility company during water scarcity periods. In our study case, the evaluated indices showed that MYI contracts that cover only longer droughts, regardless of the magnitude, offer better financial performance than contracts that cover all events (in terms of drought duration). Moreover, through MYI contracts, we demonstrate solvency for the insurance fund in the long term and an annual average actuarially fair premium close to the total expected revenue reduction. |
| first_indexed | 2024-03-10T15:25:55Z |
| format | Article |
| id | doaj.art-b967172fb7834e0a8bfd3d4d6dd19b15 |
| institution | Directory Open Access Journal |
| issn | 2073-4441 |
| language | English |
| last_indexed | 2024-03-10T15:25:55Z |
| publishDate | 2020-10-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Water |
| spelling | doaj.art-b967172fb7834e0a8bfd3d4d6dd19b152023-11-20T18:06:03ZengMDPI AGWater2073-44412020-10-011211295410.3390/w12112954Multi-Year Index-Based Insurance for Adapting Water Utility Companies to Hydrological Drought: Case Study of a Water Supply System of the Sao Paulo Metropolitan Region, BrazilDiego A. Guzmán0Guilherme S. Mohor1Eduardo M. Mendiondo2Researcher at Department of Civil Engineering, Pontificia Bolivariana University, Bucaramanga 681007, Colombia 2 Researcher at Institute of Environmental Science and Geography, University of Potsdam, Karl-Liebknecht-Str. 24–25, 14476 Potsdam, GermanyResearcher at Institute of Environmental Science and Geography, University of Potsdam, Karl-Liebknecht-Str. 24–25, 14476 Potsdam, GermanyResearcher at Department of Hydraulics and Sanitation—Sao Carlos School of Engineering, University of Sao Paulo, Sao Carlos, SP 13566-590, BrazilThe sustainability of water utility companies is threatened by non-stationary drivers, such as climate and anthropogenic changes. To cope with potential economic losses, instruments such as insurance are useful for planning scenarios and mitigating impacts, but data limitations and risk uncertainties affect premium estimation and, consequently, business sustainability. This research estimated the possible economic impacts of business interruption to the Sao Paulo Water Utility Company derived from hydrological drought and how this could be mitigated with an insurance scheme. Multi-year insurance (MYI) was proposed through a set of “change” drivers: the climate driver, through forcing the water evaluation and planning system (WEAP) hydrological tool; the anthropogenic driver, through water demand projections; and the economic driver, associated with recent water price policies adopted by the utility company during water scarcity periods. In our study case, the evaluated indices showed that MYI contracts that cover only longer droughts, regardless of the magnitude, offer better financial performance than contracts that cover all events (in terms of drought duration). Moreover, through MYI contracts, we demonstrate solvency for the insurance fund in the long term and an annual average actuarially fair premium close to the total expected revenue reduction.https://www.mdpi.com/2073-4441/12/11/2954multi-year insuranceclimate changehydrological droughtwater security and economy |
| spellingShingle | Diego A. Guzmán Guilherme S. Mohor Eduardo M. Mendiondo Multi-Year Index-Based Insurance for Adapting Water Utility Companies to Hydrological Drought: Case Study of a Water Supply System of the Sao Paulo Metropolitan Region, Brazil Water multi-year insurance climate change hydrological drought water security and economy |
| title | Multi-Year Index-Based Insurance for Adapting Water Utility Companies to Hydrological Drought: Case Study of a Water Supply System of the Sao Paulo Metropolitan Region, Brazil |
| title_full | Multi-Year Index-Based Insurance for Adapting Water Utility Companies to Hydrological Drought: Case Study of a Water Supply System of the Sao Paulo Metropolitan Region, Brazil |
| title_fullStr | Multi-Year Index-Based Insurance for Adapting Water Utility Companies to Hydrological Drought: Case Study of a Water Supply System of the Sao Paulo Metropolitan Region, Brazil |
| title_full_unstemmed | Multi-Year Index-Based Insurance for Adapting Water Utility Companies to Hydrological Drought: Case Study of a Water Supply System of the Sao Paulo Metropolitan Region, Brazil |
| title_short | Multi-Year Index-Based Insurance for Adapting Water Utility Companies to Hydrological Drought: Case Study of a Water Supply System of the Sao Paulo Metropolitan Region, Brazil |
| title_sort | multi year index based insurance for adapting water utility companies to hydrological drought case study of a water supply system of the sao paulo metropolitan region brazil |
| topic | multi-year insurance climate change hydrological drought water security and economy |
| url | https://www.mdpi.com/2073-4441/12/11/2954 |
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