Water Balance Index©

Advanced weather risk management tool that mitigates financial impacts from drought and excess moisture events.

Overview

We identify the historical norm for the area and measure how much drier or wetter conditions are relative to the average.

The index tracks the balance between precipitation (P, rainfall) and potential evapotranspiration (PET, moisture from soil and plants) over a defined period or season.

We calibrate the index structure and trigger thresholds against client loss and cost experience, and known historical events, to best meet the risk transfer needs of the client.

How it works

Parametric insurance: the trigger and the payout are agreed before cover starts.

  1. Step 01

    Event measured

    ECMWF's ERA5 and ERA5-Land datasets give daily precipitation and potential evapotranspiration for each grid cell over the risk period.

  2. Step 02

    Agreed threshold met

    The average daily water balance over the risk period falls below the trigger value agreed at the start.

  3. Step 03

    Pre-agreed payout

    A fixed amount is paid for each mm of water balance shortfall, up to the cover limit.

The formula

Reading the index

The Water Balance Index© is the average of the daily water balance over a risk period.

Positive WBI (> 0)
More precipitation than evapotranspiration: wet conditions, a water surplus (flood potential, soil moisture increase).
Zero WBI (~ 0)
Balanced conditions: water input and output close to equal.
Negative WBI (< 0)
More evapotranspiration than precipitation: dry conditions, a water deficit (drought risk, soil moisture depletion).

The index over time

The water balance value can be read on the Y-axis as 0 (normal conditions), +1, +2, +3 (wet conditions) or −1, −2, −3 (dry conditions).

You can visualise your index over time, allowing clients to quickly assess its efficiency and interpret the frequency and severity of historical events.

DroughtExcess moisture

Bar chart of the Water Balance Index over many seasons: red bars below zero for droughts, navy bars above zero for excess moisture.

Data provider: ECMWF (ERA5 / ERA5-Land)

CelsiusPro uses objective, verifiable and independent third-party data to support its parametric financial products. For the Water Balance Index that is ECMWF's state of the art ERA5 and ERA5-Land gridded datasets, with a reliable record from 1979 to the present.

ERA5 provides hourly estimates of a large number of atmospheric, land and oceanic climate variables. The data covers the Earth on a 31km grid and resolves the atmosphere using 137 levels from the surface up to a height of 80km.

ECMWF, Copernicus and European Union logos

Cover applications

The WBI can be used to detect drought and excess moisture conditions over various time scales and risk periods:

  • Seasonal droughts
  • Excess or deficit moisture during emergence
  • Preseason moisture
  • Excess moisture at seeding
  • Wet harvest
  • Moisture deficits during booting, heading and flowering

Additional applications and users include:

  • Financial institutions with agricultural lending exposure
  • Agricultural supply chain and business disruptions
  • NGOs focused on income and food security for vulnerable populations
  • Industrial and municipal water supply risk
  • Government fiscal risk against wide-scale drought catastrophes
Preparation and plantingGrowing seasonHarvest period
Excess moisture contractDrought contractExcess moisture contract

The exposure

Satellite image of farmland divided into equal grid cells.
Gridded datasets like ERA5 divide the Earth into equal grid cells, each containing modelled weather variables representing conditions within that cell area.
Map of grid cells shaded by weight.
Our additional weighting feature allows assignment of different weights to grid cells rather than treating them equally, using sources like GFSAD or global population maps, to represent areas of higher agricultural or population impact.
Cover 01 · Payout structure

Deficit Water Balance Cover

Payout for deficit water balance

The daily water balance is the daily rainfall minus the daily potential evapotranspiration.

If the average of the daily water balance over the full risk period is lower than the trigger value, the policy holder will receive a fixed amount for each mm of water balance shortfall up to the cover limit.

Applications

Agriculture, hydropower production, and other industries where losses depend on the amount of rainfall deficit.

Example

Cover period
May 1st – 11th
Trigger
< 5mm
Payout per mm
USD 10,000
Cover limit
USD 100,000

Over the risk period, the independent data provider reports daily rainfall and daily potential evapotranspiration that lead to 1.9mm of average water balance.

1234567891011Trigger 5mmAverage 1.9mm3.1 mm shortDaily water balance (mm)
Payout profile1 May – 11 May

Hover over a day to see it on the chart

Day1 May2 May3 May4 May5 May6 May7 May8 May9 May10 May11 May
Rainfall (mm)720038153000
Potential evapotranspiration (mm)01341001232
Water balance (mm)71−3−428152−2−3−2
Average water balance (mm)1.9

Payout(5mm trigger – 1.9mm average water balance) × USD 10,000 per mm = USD 31,000

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