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

Agricultural insurance is promoted as a drought-risk tool, yet its net long-term socio-hydrological impacts and interactions with other adaptations remain disputed. We expand 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 behavior model. We add two adaptation options (wells, crop switching) and two insurance designs (traditional, index), calibrated to an Indian basin. Traditional insurance increases well adoption and profits but creates a lock-in to wells and higher-water-use crops, leading to 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. Despite this, traditional insurance sustains greater crop diversity and a more diffuse irrigation mix via groundwater, reducing drought risk: profit variability and losses during consecutive droughts are smaller than under index insurance (similar to 0.039 vs similar to 0.085 USD m(-2); similar to 20% vs similar to 28%). Spatial patterns further show that insurance interacts with reservoir effects: uptake is lower in surface-water command areas, whereas index insurance has relatively high uptake in these zones, suggesting potential to counteract reservoir effects. Finally, we find that the level of available irrigation, rather than simple access, determines whether reservoir effects emerge. Our findings highlight design trade-offs: while hydrological and economic metrics favor index insurance, a risk-oriented perspective may prefer traditional insurance, underscoring the utility of ABMs to make these trade-offs explicit.