Briefing: Forget escape, it’s water itself we need to start insuring

It rained in the end, didn’t it? Naturally, we will gradually forget the consecutive droughts, both across the summer and year on year. Our taps still work, rain is falling and the UK is hardly renowned for its lack of water. Ignorance is bliss.

But the UK’s water supply is far less secure than most people realise. As things stand, it could face a deficit of billions of litres a day by 2055. Until then, who knows how much more frequent or severe droughts may become?

We are in uncharted waters, if you’ll forgive my pun. The consequences for risk transfer could be numerous.

Water is so profound we probably feel uncomfortable even thinking about the risk register for it.

But, if you rolled all of Earth’s freshwater into a single ball, it would form a sphere roughly 170 miles wide – although most of that is currently frozen solid or buried deep underground.

If you take just the water in lakes and rivers – the actual liquid surface water keeping humanity alive – that giant ball shrinks down to a tiny bubble just 35 miles wide, barely big enough to cover a city like New York

It is tempting to imagine hosepipe bans will remain sufficient for water security and insurers will never be called upon, but that looks more and more like wishful thinking.

Wishful thinking

During the latest drought, my household stumbled across an exemption to the hosepipe ban for those with children under five. As good Brits, and rather than risk a fine by sneaking into the garden, we applied.

When Thames Water confirmed the exemption, it also explained that bottled water would be delivered to our door if supplies were interrupted for a prolonged period.

Strip away the logistics and that is effectively water insurance. If the event occurs, a minimum quantity arrives to sustain the household.

We should be so lucky. If the UK’s water troubles do reach breaking point, I doubt those bottles would last long on the doorstep. We all remember toilet roll during Covid-19. Water scarcity operates on a different scale of societal risk.

This could be the UK’s future and, according to government policy, it is. A government analysis of the water industry’s performance in 2024 and 2025, published in November 2025, warned that the country could “no longer continue to take water for granted”.

This summer brought 10 temporary use bans. Rainfall in the final weeks of August meant most regions received more than 80% of their long-term average for the month, but south east England received just 54% and England overall received 78%. At the time of writing, eight UK reservoirs were classed as exceptionally low.

True, it rains here. But a whopping 19% of the water supply is lost through leakage. The government says £104bn of capital investment is being undertaken, yet reservoirs may still struggle to recover without above-average autumn and winter rainfall.

Policing restrictions presents another problem. Hosepipe bans are difficult to enforce, especially when water utilities are already creaking under mountains of debt. The Environment Agency also faces challenges policing abstraction restrictions for agriculture and other uses.

Agriculture has already suffered. Despite being prioritised for abstraction licences, milk yields fell during the drought. That suggests the grass being eaten by livestock was not exactly overwatered.

Grassroots sport was affected too. My local football team literally had no grass roots. Its community playing field was barren at the start of the season, while the metered supply made year-round irrigation a decision costing thousands of pounds.

Looking ahead, the behavioural and economic implications are only beginning to emerge. We need insurance products – and we need them quickly.

Ignore at your peril

Water is the risk we cannot afford to ignore. Regardless of where you sit on climate change, the facts are as they are.

The UK faces major water shortages and the prospect of more frequent droughts. Whichever way you cut it, the losses will find their way into insurance.

The economy is unlikely to rely entirely on a nationally managed response when the constraints on state finances are widely understood.

So, here is a bold prediction – households, businesses, farms and sports teams will soon be asking for water cover.

No, I do not mean flood insurance. That risk is already severe enough. I mean cover for the lack of water.

Sensible brokers, managing general agents and carriers should begin planning for a future in which water indemnity becomes as common as business interruption.

As much as we hope Thames Water can crawl out from beneath its £18bn pile of debt, the government expressed its own concern in its February 2026 white paper, which said the water sector “lacks stability and financial resilience”.

That second point is, you know, the whole game for insurance.

What might water cover look like? Would bottles or tanks be delivered when parametric triggers are met? Would the policy provide financial compensation and leave the wider economy to source the water?

Could insurers’ investment operations support desalination and other infrastructure capable of improving national resilience?

There are difficult questions here. Rainfall may be as unpredictable as sunshine, but that does not change the fact that the UK is approaching a crossroads on water sustainability.

The insurance industry should engage utilities on larger risk transfer programmes for strained supplies, while also considering the downstream consequences for households, agriculture, businesses, health and leisure.

More importantly, simply indemnifying everyone affected by water insecurity will not be enough. As with the potential use of robotics and artificial intelligence before, during and after losses, insurance should consider how it can intervene rather than merely pay for the outcome.

Anyone arguing this is not a major issue is talking garbage. Water is life.

I am only happy when it rains.