Drought map

Drought Conditions and your Business – Drought Liability and Coverage

For the third consecutive year, California, and much of the Southwest, faces serious challenges because of drought conditions. Nearly 60 percent of the state of California is suffering from the worst possible drought impact as measured by the U.S. Drought Monitor. Water restrictions have been imposed throughout the state as reservoirs reach levels near and in some cases below levels measured during the last major drought in 1977.

It’s serious business in California. This is the most productive region in the nation for agriculture, and farmers are being forced to pay up to 10 times more for water than they did before the state restricted supply, sending costs soaring, as Bloomberg reports. Farmers who can’t pay the price are watching their crops die, if they planted at all earlier this year in the face of the ongoing drought. Farmers in the Central Valley have already lost $800 million in farm revenue, according to the University of California at Davis.

The UC Davis report finds a loss of 17,000 seasonal and part-time jobs as a result of the drought, statewide dairy and livestock losses will represent $203 million in revenue losses, and consumer food prices will be higher.

The drought also imposes a heightened risk of wildfires, and the high temperatures that accompany the drought conditions – the highest temperatures on record for January – July, according to the National Climatic Data Center – means a further drain on California’s infrastructure and energy resources.

Climate experts predict the drought will last into 2015.

Adapting to the drought

Businesses that rely on California produce, and businesses in the region that depend on water for any reason, are finding that they’ll need to improvise. From respecting water restrictions for everyday use, to working hard to find alternatives for agricultural and industrial use, people in all walks of business need to consider and reconsider new water options. Booming business in California include drillers, who are digging deeper and deeper into the earth to find new sources of groundwater, and desalination companies that are working on new alternatives to make that process less expensive and more accessible.

Some farmers are turning to alternative crops, while others are letting their fields lay fallow until the drought is over.

Insuring against drought

Those without adequate drought insurance or coverage will find it near impossible to get affordable policies now, and those in the agricultural business who are finding times difficult are turning to federal, regional, and local programs for assistance. The USDA site offers links to programs with information updated regularly.

It’s important to keep in mind that California and the Southwest in general are not the only regions that suffer from drought. The University of Kentucky produced a paper, Investigating your Crop Insurance Policy Ahead of a Drought, that cautions farmers in the nation’s heartland to be smart about planning for droughts, as well. As climate issues continue to show signs of change, being prepared is key.

Could your business be affected by drought? Work with your insurance provider to find out what kind of coverage you might need, and read about climate conditions in your region. If you find it’s difficult to purchase drought insurance on the open market for your business, consider a captive insurance company as an alternative. Contact us if we can help you learn more.