As the global economy expands, increasing losses of natural capital translate into substantially higher costs and inefficiencies in achieving future water security.Risk transfer is one risk management tools used to protect regions particularly vulnerable to the effects of extreme events that affect water availability.Index insurance has been investigated as a potential solution for dealing with drought events that lead to water scarcity in the water supply sector.Nonetheless, water scarcity can result not only from drought but also from the degradation of quality.Floods also have an impact on water supply, resulting in economic losses for the supply sector.Water supply services are under threat from a variety of hazards intensified by extremes of climate variability and climate change and socioeconomic factors.This work aims to discuss index insurance adaptation to cover financial losses incurred by water utility companies as a result of a variety of extreme hydrological events and uncertainty drivers, bringing opportunities to improve index insurance application to the sector.Given the complex vulnerability to different hazards related to the quantity and quality of raw water, in addition to the drivers of uncertainty affecting water availability, improved risk transfer model application is still required to incorporate such multiple risks and uncertainties.Many gaps and limitations in the design and implementation of water infrastructure insurance remain, including improved characterization of the relationship between droughts, floods, and pollution extremes and their implications in financial losses for supply; and the development of damage quantification methodologies, among other issues.