For industries to remain properly insured, we must be able to quantify the severity of a drought. Soil moisture data (‘ERA5 hourly data at single levels from 1959 to present day’) provided by the European Space Agency provides the best way to quantify and visualize drought.
In some parts of Europe 2022 was a record breaker – it was one of the driest, hottest years in history! However, with soaring temperatures comes dire consequences, especially for the agriculture, energy, logistics and forestry sectors. Last year Hungary’s corn yield decreased by 30%; Italy suffered massive livestock deaths; the UK, France, Spain, Germany, and Portugal all experienced huge water shortages which affected hydropower in Spain, nuclear power plants in France, agriculture in Britain, and shipping in Germany. What is more at the end of August 2022, forest fires caused by extreme temperatures were responsible for 735,000 ha of burnt, or burning, forests in EU countries – that’s 2.3 times more than the annual average between 2006 and 2021 when compared year-on-year. Seemingly, nowhere in Europe was spared some form of drought-induced disaster. And this isn’t a freak occurrence. It’s not a problem that is going to go away.
So, the burning question is: how do we calculate insurance premiums to cover such risks? First, we have to understand why drought is on the rise. The simple answer is global warming due to intense human activity, especially over the last 50 years, is the cause. Greenhouse gases are currently 30% higher than during the 1950s, and agricultural deforestation has seen us lose 40% of the earth’s forests. This has led to a shift in the average temperature by 1°C compared to the pre-industrial era, and thus resulted in drastic changes in the weather. We’re experiencing more extreme temperatures, heat waves, higher wind speeds, more hail, and uneven distribution of rainfall throughout the year, meaning no rain when plants need it or destructive heavy rains and floods that destroy crops and properties at other times.
Tools to quantify the severity of drought
For industries to remain properly insured, we must be able to quantify the severity of a drought. Soil moisture data (‘ERA5 hourly data at single levels from 1959 to present day’) provided by the European Space Agency provides the best way to quantify and visualize drought. The satellite soil moisture index provides the best parameter to insure against drought for a variety of reasons. The soil’s moisture has a direct impact on crop development and the quantity and quality of food production. The data, which is independent of parties to the insurance contract, can be verified by the farmer or food processor themselves and requires no field inspections or paperwork to indemnify the loss, resulting in a faster insurance pay-out.
Group Practice Leader
Food & Agriculture
T +48 22 39 33 211
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