Insurance companies offer customized solutions

The possibility to protect oneself against financial losses through an insurance policy is not new and is practised in almost every area of life. Many aquaculture companies choose to do without this risk insurance however because they feel the requirements are too high, the procedure too complicated or the premiums too expensive. But taking out insurance in the aquaculture sector can definitely be worthwhile and should be a part of risk management.

In September 2011 the white spot virus caused damages totalling several hundred thousand dollars in numerous shrimp cultures east of Zamboanga City in the Philippines. A month before that, there had been mass mortality of farmed fish in operations along the Minjiang River in the Chinese province of Fujian. The reasons for this were unclear but the damage was immense, especially since the river serves as a drinking water reservoir for the densely populated area. In the year 2009 a violent thunderstorm caused the Fisibach near Zurich to burst its banks, carrying away with it 125,000 char, rainbow and brook trout from an organic farm. The operator had to bear the costs of the damages alone (which amounted to 200,000-300,000 Swiss Francs) because the fish stock was not insured.

It is not known whether the Philippine and Chinese businesses were insured. It is to be doubted, however, because insiders estimate that more than three-quarters of all fish farms worldwide are not insured against disease and other risks. Robert Gare, who works as a broker for Catlin, a leading insurance company in the field of aquaculture, claims that the vast number of Chinese farms, which account for about 70 per cent of global aquaculture production is not insured or is not insurable. Although aquaculture was carried out in a risk-laden environment the industry appeared to put risk management at the bottom of its list of priorities, said Neil Hopkins from reinsurance brokers AHJ in an interview with Fish Farming International. Among the countries where a relatively large number of farms is covered by insurance are Norway, Chile, Canada, Scotland, the Faroe Islands, Denmark, Spain, Malta, Italy, Turkey, Greece, Australia, New Zealand and Japan. The best protected species are salmon, sea bream and sea bass, tuna, trout and turbot. However, a look at aquaculture as a whole reveals the dimension of the problem: most companies have no, or only inadequate, insurance coverage. This is already to be seen in the low level of insurance premiums that the industry pays each year. They are said to amount to about EUR 142 million EUR worldwide – which is just a fraction of the value of the fish stocks in the farms. That was approximately 110 billion USD in 2009.


FAO study points to the need to catch up

The FAO study entitled "Review of the current state of world aquaculture insurance" (FAO Technical Paper 493) estimated that in 2006 there were 8000 aquaculture insurance policies throughout the world. Even if this figure has increased in the meantime it is still not nearly enough to protect this fast-growing, technology and knowledge based industry against the threat of losses. Global aquaculture has made tremendous progress in all areas, be it in responsible farming practices and feeding, in farm management, or preventive medicine. In many farming facilities the continuous monitoring of water quality has become as standard as the regular disinfection of the equipment or the preventive vaccination of the fishes. The number of companies that have implemented Best Management Practices (BMPs), Codes of Conduct and Codes of Good Practice, Standard Operational Procedures or Traceability Routines and achieved certification in accordance with various guidelines is growing continuously. In the face of these developments many people in the industry seem to believe that they can do without insurance protection.

But wrongly so, for the risks that aquaculture has to face are growing at least as fast as the progress that is being made. The spectrum of farmed species is constantly expanding, new farming technologies require even higher investments, production intensity is increasing, and farming locations are shifting more and more into the offshore regions. This almost inevitably increases the risk of economic losses resulting from power failure or other technical defects, disease, water pollution and flooding, storms or other natural disasters, long periods of frost, summer heat or vandalism. In order to at least partially guard against such losses, farm operators should thus see aquaculture insurance as part of their corporate risk management.

One of the perils covered by liability insurance is the risk posed by offshore farms to shipping.
A farm’s net cages and technical equipment represent a considerable value which is exposed to numerous risks in the sea.


"All Risks" or "Named Perils"?

But what may sound simple often in practice proves to be harder than imagined. Although in principle almost anything can be insured it is not very advisable because this soon makes the policies unaffordable. Even the insurance type "All Risks" (insurance companies distinguish between "All Risks" and "Named Perils") does not by any means protect against all eventualities: each policy has exceptions. The two categories differ only in the approach they take for defining the claims. In the case of "All Risks" the initial position is that the insurance covers all risks and then excludes those claims that the policyholder does not consider to be so important. In the case of "Named Perils" it's the other way round: at first nothing is protected, and then the claims are picked out one by one that are to be covered by the insurance policy. For example, liability insurance and live fish transportation, technical equipment from the feed and work boats to net cages, tanks and raceways, aeration, cooling and filtering devices. It does not make sense to cover all types of claims in every case. Some insurance companies offer policies covering damage claims in case of earthquakes, fires and explosions, or jellyfish invasions, ship collisions and tidal waves. To save money, farm operators should do without such claims if the named risks are negligible or can even be ruled out.

The requirements for taking out insurance are high. The insurance provider will not only be interested in the basic risk level of production (e.g. tried and tested farming techniques such as salmon or shrimp farming or new, not yet technologically perfected methods), but also the location (close to the coast and protected, net cage or pond, offshore or onshore) and the general management standards on the farm. It is thus easier for companies with well trained employees in developed and strictly regulated countries to take out insurance than family businesses in developing countries, although these are often in much greater need of risk protection. One of the most important issues for insurance providers is the safety of the fish stock. Regular controls are absolutely essential but only suffice if everything is always meticulously documented.


Detailed records and logs are indispensable

A farm might be exemplary, the fish healthy, and the production risk negligible but if a farm operator is not quite sure at a defined point in time how many fish he has in the water or how big the fishes are he will stand very little chance of being insured. Exact information on the fish stock is just as important for the insurance provider as for the policy holder because in the event of a claim that is the only way to demonstrate clearly what losses actually occurred during the farming process. And these data are an important basis for any compensation claims. In addition, the insurance provider will require further information that confirms that the inventory data are correct (e.g. on the basis of the purchased fry and feed) and that the farming conditions were optimal and correct for the species in question (e.g. by providing long-term measurements of temperature and oxygen). To protect themselves against unreasonable demands insurance companies will require not only insight into the protocols, but will also set their customers specific requirements, such as the installation of a monitoring system that alerts the operator immediately if important parameters get out of control. Anyone who does not follow the agreed clauses in the insurance contract has little chance of receiving compensation for losses in the event of damages. It is thus essential to read all the small print in the contract, too, and to implement the requirements as quickly and completely as possible.

Together with the insurance agent the aquaculture producer should try to determine the value of the fish stock and the farm and this value should be stated in the contract. After an accident there may otherwise be a risk of being classified according to industry-standard averages.

Even the best insurance can hardly be expected to pay for each and every dead fish in the farm. As with household, vehicle and other insurances, the policy holder has to pay a certain amount himself in aquaculture. How high the deductible, i.e. the portion of any claim that is not covered by the insurance provider, is depends on the specific design of the policy. Viewed internationally it often amounts to 10 to 20% of the stock value. In the case of new, barely tested farming techniques with high risk of loss, the parties sometimes agree to even higher levels. This practice has certain advantages for both sides. The policy holder’s premium will be considerably lower and the insurance provider only has to pay for any damages in excess of the deductible. The price of aquaculture insurance is thus dependent on many factors and can only be determined on a case by case basis. The reliability of the farming method, potential risks, the farm location, the value of the fish stock and the technical facilities and equipment, the level of management, the deductible and various other things affect the size of the premium the policy holder has to pay.


Where some fish species are concerned the value of the fish stock in a farm can amount to several million dollars.
Floods, sudden temperature changes or failure of a ventilation system can lead to total loss of livestock.

Insurance companies specialize in aquaculture needs

In the event that a disease occurs in a fish stock or other problems arise, it is advisable, even with the best insurance policy, to intervene as quickly and persistently as if one were not insured at all. Anyone who informs their insurance provider immediately and keeps them constantly informed of further developments saves themselves a lot of bother and explanations later on. For these reasons it is wise to make contracts only with insurance companies that already have experience in aquaculture. Anyone who knows anything about this risky and complicated business does not need to be told about the basic set-up and this saves a lot of tedious explanations. On top of that, it also prevents possible misunderstandings.

An insurance company that has extensive knowledge in the field of aquaculture is Catlin Europe, which operates as part of the Catlin Group in the international insurance and reinsurance business in over 30 specialized divisions. As one of the world's largest aquaculture insurance providers Catlin offers specialized insurance solutions for fish farming both in inland and in coastal waters. It is possible to insure almost any part of an aquaculture operation, from the biomass (fish stock), feed barges, work boats and floating devices to live fish transport. Catlin’s service also includes liability insurance for fish farms.

The international Willis Group, a leading industrial insurance broker, has in its portfolio customized insurance solutions that are tailored to the risks involved in aquaculture. Among other things, Willis provides insurance for the risk of mortality in onshore and offshore fish farms. Lloyd's broker Swinglehurst Ltd. has a department called Aquarius Insurance Services that has specialised in insurances for aquaculture operations since the year 2000. Their portfolio targets both small family farms and large, multinational companies and can be divided into three categories:
• onshore farming (hatcheries and farms on land), production in tanks, ponds and raceways, as well as recirculation plants
• Offshore farming (farming facilities in waters from lakes to the open sea), production in floating net cages
• Hatcheries and nurseries (similar to onshore farming)
The spectrum of insurance claims ranges from risks of pollution, disease (with the exception of ectoparasites such as salmon louse), storms, losses due to sudden changes in water parameters (oxygen, temperature, pH and salt content), or mechanical damages (ice drift, ships, power failure).

With offices in the UK, New Zealand, Australia and the USA Sunderland Marine is one of the major international aquaculture insurance providers. The company’s experts assess several hundred farming enterprises in the industry every year and have a wealth of experience with regard to species such as abalone, salmon, tuna or kingfish, which are either produced in recirculation systems on land or in floating farms in the sea. Logan Livestock Insurance Agency, an Australian insurance broker, also provides insurances which are tailored to the needs of onshore and offshore operations.

For almost all sectors of aquaculture – small and large operations, onshore and offshore farms, as well as various different species – Global Aquaculture Insurance Consortium (GAIC) offers suitable insurance deals that cover the mortality risk of the fishes, the technical facilities and possible recalls of products, as required. The group mainly insures producers of edible and ornamental fish as well as shellfish (mussels, scallops, oysters) and abalone farmers. The insurance spectrum offered by the company A.I.E., which belongs to Meslee Insurance Services, is similarly widespread.

A particularly finely tailored insurance product that was designed solely for tilapia farming in Central America, was developed by the insurance provider First Reinsurance Service (FRS). Tilapia farms in this region can protect themselves against, among other things, the partial or complete loss of the fish stock.

Whether, and how much, an insurance provider will actually pay in case of damages depends on many factors and is usually only decided after a thorough examination of the situation. The basic prerequisite is, of course, that the farmer has complied with all contractual obligations and has followed all of the insurance provider’s requirements. In the event of accidents or disease in the fish stock he should be able to prove that he has done everything possible to avert or minimize the loss. Anyone who – relying on their insurance coverage – hesitates too long and fails to act quickly and professionally runs the risk of being left empty handed in case of damages despite their insurance policy.