Beyond Profit: Modelling the Socio-Hydrological Impacts of Agricultural Insurance and Drought Adaptation

Agricultural insurance is promoted as a drought-risk management tool, yet evidence on its long-term socio-hydrological impacts and its interactions with other adaptations is mixed, with studies reporting both increased and decreased adaptation uptake due to insurance. We extend the Geographical, Environmental and Behavioural model (GEB)—a fully distributed hydrological model coupled with an agent-based model (ABM), a process-based crop model, and a dynamic farmer adaptation module—by adding two adaptation options (well adoption, crop switching) and two insurance products (traditional indemnity, index insurance). We calibrate the model to an Indian river basin and compare outcomes across hydrological, economic, and risk-oriented metrics. Traditional insurance increases well adoption and profits, but induces lock-in to wells and higher-water-use crops, resulting in 20–50% higher annual water use and 30–60% lower groundwater levels. Index insurance avoids this lock-in, shifts production toward lower-water options, and delivers higher profits with lower basin-wide water use. However, traditional insurance sustains greater crop diversity and a more diffuse irrigation portfolio via groundwater, reducing drought risk: profit variability and losses during consecutive droughts are smaller than under index insurance (~0.039 vs ~0.085 USD m⁻²; ~20% vs ~28%). Spatial patterns indicate that insurance interacts with reservoir effects: uptake is lower in surface-water command areas, whereas index insurance shows relatively higher uptake in these zones, suggesting potential to offset reservoir effects. Finally, we find that the level of available irrigation, rather than simple access, determines whether reservoir effects emerge. Overall, the results show a design trade-off: hydrological and economic outcomes favor index insurance, while risk outcomes can favor traditional insurance, illustrating how ABMs can make these trade-offs explicit.