YOUR BUSINESS IS AT RISK! - AN INTRODUCTION TO AQUACULTURE INSURANCE

The core risk for any animal farming operation is the loss or mortality of the stock, not only the loss of a particular production run, but also the potentially longer term effects of the loss of broodstock or the effects of losing juveniles impacting upon contract fulfilment, etc.

This is becoming increasingly significant as the frequency and severity of extreme natural events increases.  Over the last few years there have been major natural events that have caused the mortality of millions of dollars of fish stock, for example: super-chill events in Eastern Canada (est. USD 40 million insured losses), algal bloom off western Mexico (est. USD 15 million insured losses) and the single largest recorded loss event again caused by algal bloom in Chile (est. USD 200 - 500 million total losses).

Yet it is estimated that less than 5% of global aquaculture production is currently insured!  One of the reasons is simply that a vast proportion of fish farmers are not aware that their stock can be insured, which has the knock on effect of making it difficult to obtain low cost external financing, as financiers perceive aquaculture as high risk, whereas the security of insurance can provide those financiers with the comfort they require.

So how does stock mortality insurance work?  Standard cover works on an indemnity basis whereby each individual animal is accounted for and valued at a predetermined amount based on production costs.  The stock can then be covered against a list of potential perils, e.g., storm, pollution, flood, mechanical breakdown, algal bloom, disease, etc., with the intention being that if cover is chosen against the full list, the stock is effectively covered against all potential risks.  However, by having a list of perils there is flexibility, as an individual insured can pick and choose the perils to be covered, which in combination with the level of excess or self-retention, permits cover to be tailored to a particular budget or individual circumstances.

This type of standard policy offers the broadest cover options, both in terms of the range of perils and the capability to offer anything from "belt and braces" protection through to major catastrophe only.  It is also applicable to most farming systems, from onshore ponds, raceways, tanks etc., through to floating cages, longlines, etc., in lakes, reservoirs and the open sea.

However, it does have one fundamental requirement that can restrict its application - the farming operation must employ a stock control system that permits accurate estimation of the number and biomass of stock on site at any point in time.  As a result, some extensive farming systems, such as stocked shellfish beds and large shrimp ponds containing billions of individuals, may not be suitable for this type of cover.  In which case, there are alternative options on a "parametric" basis that offer cover against specific natural perils more akin to financial weather derivatives.