J.O.
You have described my niece! The slightest fuzz in the water would send her into hysteria! Just walking out the door would freak her out, lord forbid she heard a sound she didn't recognize! My poor sister, she tried the be tough, strong, don't let her win, and my sister lost every time.
What worked was me, exposure to bugs is what I did. As long as it isn't a bee or wasp I do find with bugs. Her first exposure was a book about lady bugs...I got lucky and found one right after. She sat in my sisters lap while I played with this 'amazing, super, wonderful, beautiful bug'. Ever so slowly she creeped forward, didn't touch, but watched my reaction. Slowly over time we worked our way up to spiders (easier to find), fly's, even a cockroach (just nasty and took everything I had not to freak out). My sister read books about bugs, stories that had bugs, and it worked. She is 16 now, and has no fear of any bug.