Aquaculture has become a crucial source of food globally. However, like any other industry, the aquaculture sector faces various risks. Environmental changes, disease outbreaks, equipment damage, and operational failures are common issues that can impact aquaculture businesses. This is where aquaculture insurance plays an important role, providing a safety net for companies to mitigate these risks and recover from unforeseen events.
Aquaculture is an emerging industry that heavily depends on the environment and is more unstable than other conventional farming operations (Adnan, et al., 2024). Nevertheless, on an international level, large-scale aquaculture producers benefit more from the insurance industry, while small and medium-scale farmers still lack coverage, especially in developing countries, with limited insurance options and high premiums (Van Anrooy et al., 2022). Additionally, aquaculture insurance remains a non-consolidated sector of the insurance market (Legísima y Scott, 2024).
In this article, we will delve into aquaculture insurance and cover key aspects such as policy coverage, the role of insurance companies in aquaculture, the aquaculture insurance market, and the global aquaculture insurance consortium. We will also explore the importance of regulatory compliance and the financial implications of insurance in this sector.
What are Aquaculture Insurance Policies?
An aquaculture insurance policy is designed to cover the unique risks associated with aquaculture activities. These policies provide protection against events such as disease outbreaks, extreme weather conditions, and equipment failures. Coverage can vary depending on the provider and the specific needs of the aquaculture operation.
According to the FAO (?), aquaculture insurance is defined as “a financial tool that offers a mechanism to transfer the risks faced by aquaculture production.” Aquaculture insurance is primarily used to protect against the risk of production losses.
Aquaculture insurance policies often include coverage for:
- Stock losses: Due to diseases, contamination, or pollution.
- Equipment failure: Malfunctioning aerators, pumps, or cages.
- Natural disasters: Floods, hurricanes, or tsunamis that can destroy farm infrastructure.
- Operational risks: Risks arising from human error or accidents.
In general, aquaculture insurance policies focus on mitigating the financial risks arising from natural and man-made causes. Therefore, selecting the right policy is essential for aquaculture operators to protect their investment and ensure business continuity.
Commonly Covered Perils in Aquaculture Insurance Policies
According to the FAO’s “Blue Growth Initiative,” the commonly covered perils in aquaculture insurance policies include:
- Natural perils: Such as floods, droughts, storms, cyclones, hail, strong winds, tidal waves, lightning, fires, explosions, landslides, subsidence, earthquakes, tsunamis, freezing, frost, and ice.
- Biological perils: Such as diseases, predation, oxygen depletion due to vegetation and microbiological activity, including upwellings.
- Chemical perils: Such as changes in water conditions (pH, salinity, dissolved oxygen) and contamination caused by external factors.
- Technical perils: Such as structural failures, mechanical breakdowns, accidental damage to machinery, and power outages.
- Social perils: Such as malicious acts and theft.
Risk Management in Aquaculture Insurance
Managing risks in aquaculture is no easy task, and risk management strategies are essential for both insurers and aquaculture businesses. From the perspective of insurers, risk management involves:
- Environmental assessment: Insurers evaluate local conditions, such as water quality, temperature variations, and the likelihood of extreme weather conditions.
- Disease control measures: Disease outbreaks are a major concern, so insurers work with aquaculture businesses to implement biosecurity measures, reducing the risk of infection spread.
- Monitoring technological investments: Many farms rely on expensive equipment such as feeding systems, monitoring devices, and water filtration systems. Insurers ensure that these technologies are maintained and operated correctly to avoid failures.
Aquaculture operators must adopt risk management strategies to prevent losses. In many cases, insurers require operators to take preventive measures, such as installing protective nets or aeration systems, as part of their policy agreements.
Lastly, the study by Luna et al., (2023) provides a framework of the main sources of risk perceived by aquaculture producers. The researchers present an overview of risks in the aquaculture industry, consisting of eight risk categories, 19 risk types, and 40 sources of risk.
Criteria for Selecting Insurance
When selecting an aquaculture insurance policy, farmers must consider several key criteria to ensure adequate protection of their assets, investments, and operations. Below are the main aspects to consider when choosing aquaculture insurance:
Comprehensive Coverage
It is essential that the policy covers all relevant risks for the aquaculture operation, including:
- Aquatic organism mortality: Diseases, extreme temperature changes, and oxygen depletion are common causes of mortality.
- Natural disasters: Floods, hurricanes, earthquakes, and other catastrophic events can affect facilities and production systems.
- Water contamination: Factors such as the introduction of contaminants or changes in water quality can affect the health of aquatic organisms.
- Operational risks: Equipment failures, power outages, or technical issues that interrupt the production process.
Type of Production and Species
Aquaculture insurance must be tailored to the type of production the farmer operates, whether it’s pond farming, floating cages, or recirculating systems in aquariums. It’s also important to consider the species being farmed, as some species may have stricter management requirements or higher associated risks, such as shrimp, ornamental fish, or high-value commercial species like salmon.
Asset Valuation
It is crucial that the policy accurately reflects the value of the farmer’s assets, including infrastructure costs (tanks, cages, aeration systems, recirculation systems), the value of growing organisms, inputs (feed, veterinary products), and labor. Inadequate valuation can result in insufficient indemnities in case of a claim.
Liability Coverage
Farmers should ensure that the policy includes liability coverage to protect against potential third-party lawsuits if their operations cause damage to neighboring properties, public health, or the environment.
Technical Assistance and Advice
Some policies include additional advisory services, which can help farmers mitigate risks, improve management practices, and ensure compliance with environmental and health regulations. The inclusion of these clauses can be an added value that maximizes the profitability of the policy.
Exclusions and Coverage Limits
Farmers should carefully review the policy’s exclusions, meaning those events or circumstances not covered. They should also ensure that the coverage limits are sufficient to guarantee business continuity in the event of significant loss.
Indemnity Terms
The form of indemnity is another key aspect. Some policies offer indemnity based on replacement value, while others may calculate it based on depreciated value or the market value of the organisms at the time of the claim. It’s important to understand these differences to avoid surprises during the claims process.
Insurer’s Track Record
Farmers should research the insurer’s track record in the aquaculture sector, paying attention to their experience, responsiveness to claims, and feedback from other producers in the industry. Insurers specialized in aquaculture are usually better prepared to handle the complexities of these operations.
Regulatory Compliance
Lastly, farmers must ensure that the policy complies with local and international regulations governing the aquaculture sector. This is particularly important if they export production or operate in areas regulated by environmental or trade laws.
A well-structured insurance policy not only protects against economic losses but also provides peace of mind and support to face unforeseen events that may arise during the production process.
Claims Process: Loss Recovery
The claims process in aquaculture insurance can be complex, especially when large-scale losses occur. Insurers must act quickly to assess the damage and provide compensation to affected businesses. For this reason, it is crucial that aquaculture operations maintain accurate records and promptly report any incidents that may lead to a claim.
Key steps in the claims process include:
- Incident reporting: It is vital to promptly report any event that causes a loss (e.g., disease outbreak, storm damage).
- Assessment: The insurer evaluates the extent of the damage. This may involve sending experts to the site for inspection.
- Compensation: Based on the terms of the aquaculture insurance policy, compensation is provided to the insured party.
Some insurers also offer ongoing support during the recovery process, helping aquaculture businesses resume normal operations more quickly.
Financial Implications and Importance of Insurance
The financial implications of aquaculture insurance cannot be overstated. For large-scale aquaculture operators, losses can be catastrophic without adequate coverage. For example, an unexpected disease outbreak could wipe out entire populations, leading to financial ruin. With proper insurance, these operators can recover and continue operating without bearing the full financial burden.
Additionally, policy coverage is particularly important when considering the substantial investments involved in aquaculture. Fish farms often require costly infrastructure, from cages and nets to feeding systems. Therefore, protecting these assets with comprehensive insurance is essential.
Insurance also plays a role in ensuring regulatory compliance. Many governments require fish farms to have a certain level of insurance coverage to operate legally. For instance, farms handling endangered species or using specific types of water bodies may be subject to stricter insurance requirements.
Environmental Risks and Disease Outbreaks in Aquaculture
Environmental risks pose a constant threat to aquaculture. Changes in water quality, pollution, and temperature fluctuations can have devastating effects on fish farms. Disease outbreaks are among the most feared risks, as they can spread quickly and cause significant stock losses. Common diseases affecting aquaculture include viral, bacterial, and parasitic infections.
Insurance policies covering environmental and disease risks generally include provisions for:
- Preventive care: Ensuring that the farm takes measures to prevent diseases.
- Disaster recovery: Covering the costs associated with restocking and rebuilding after an outbreak.
Mitigating these environmental risks involves taking proactive measures, such as improving water management and regularly monitoring fish health.
Challenges in the Aquaculture Insurance Industry
Despite the importance of insurance, aquaculturists, particularly in developing countries, are often reluctant to purchase it, viewing it as an “unnecessary expense.” Hohl (2021) highlights that although aquaculture insurance has been trying to mitigate production risks through various products, insurance penetration among aquaculturists remains generally low. This low penetration may result from factors such as age, education level, income, and land ownership, which are key predictors of risk attitude (Adnan, et al., 2024).
In this regard, Jimoh y Ajemunigbohun (2023) recommend that aquaculture insurers should enhance and expand their value chain processes, as well as simplify insurance contract designs. Meanwhile, governments should extend subsidy networks.
Watson et al., (2023) suggest that a convergence of the insurance industry and marine sectors (fishing and aquaculture), fostered through collaboration with governments, academics, and NGOs, will help pave the way for new forms of insurance.
Key Players in Aquaculture Insurance Companies
The aquaculture insurance market is supported by several prominent players. Aquaculture insurance companies specialize in underwriting risks unique to aquaculture and offer comprehensive packages tailored to specific species and farming methods. Some of the leading companies include:
- AXA XL: Known for its aquaculture insurance products, AXA XL covers various risks, from stock losses to natural disasters.
- Sunderland Marine: Offers specialized policies for both aquaculture and the marine sector, covering hatcheries and fish farms.
- Global Aquaculture Insurance Consortium (GAIC): A collaboration of insurance companies providing tailored insurance solutions for aquaculture operators worldwide.
These companies assess the risks associated with different aquaculture practices, geographical regions, and species types. Customized policies ensure that fish farmers can select coverage that fits their specific needs, making aquaculture insurance companies essential to the industry’s sustainability and growth.
Global Aquaculture Insurance Consortium (GAIC): A Collaborative Approach
The Global Aquaculture Insurance Consortium (GAIC) represents a collective effort by insurers to develop specialized products for the global aquaculture industry. This consortium allows insurers to pool resources and knowledge, providing aquaculture businesses with stronger, more customized insurance options.
The main benefits of GAIC include:
- Access to global markets: Through the consortium, insurance companies can offer policies in multiple countries, ensuring coverage for international operations.
- Risk pooling: By combining resources, insurers can better manage the risks associated with catastrophic events, such as natural disasters affecting large regions.
- Innovation in policy design: The consortium facilitates the development of innovative products tailored to the changing needs of the aquaculture industry.
This collective approach ensures that insurance remains accessible and affordable for aquaculture operators worldwide.
Conclusion: The Importance of Aquaculture Insurance
In conclusion, aquaculture insurance is vital to protect industry investments against unpredictable risks. From environmental risks and disease outbreaks to the financial implications of stock losses, having the right insurance coverage is essential for the sustainability of aquaculture businesses.
By working with aquaculture insurance companies, adopting effective risk management practices, and participating in collaborative initiatives like the Global Aquaculture Insurance Consortium (GAIC), fish farmers can protect their operations and ensure long-term success. Whether safeguarding against natural disasters, managing disease outbreaks, or ensuring regulatory compliance, insurance remains a key component of any successful aquaculture operation.
References
Adnan, K. M., Xicang, Z., Khan, M. A., Sarker, S. A., & Rahman, A. (2024). Catastrophic risk perceptions and attitudes in aquaculture: Evidence from flood prone areas of Bangladesh. International Journal of Disaster Risk Reduction, 100, 104203. https://doi.org/10.1016/j.ijdrr.2023.104203
FAO. Blue Growth Initiative. Blue finance guidance notes: Aquaculture insurance for small-scale producers. 12 p.
Hohl Roman. 2021. ‘A Review Of Aquaculture Insurance’ Summary. Global Index Insurance Facility (GIIF).
JIMOH, A. A.-A., & AJEMUNIGBOHUN, S. S. (2023). DEMAND FOR AQUACULTURE INSURANCE AND BARRIERS’ EFFECTS AMONG FISH FARMERS IN LAGOS, NIGERIA. GUSAU JOURNAL OF ECONOMICS AND DEVELOPMENT STUDIES, 4(1), 109–124. https://doi.org/10.57233/gujeds.v4i1.8
Legísima, César Real R. and Scott,Jason. 2024. Aquaculture Insurance. In: The Shrimp Book II pp. 44-56 9781800629363.0002, CABI Books, doi:10.1079/9781800629363.0002, (44–56), CABI, Aquaculture Insurance.
Luna, M., Llorente, I., & Luna, L. (2023). A conceptual framework for risk management in aquaculture. Marine Policy, 147, 105377. https://doi.org/10.1016/j.marpol.2022.105377
Van Anrooy, R., Espinoza Córdova, F., Japp, D., Valderrama, D., Gopal Karmakar, K., Lengyel, P., Parappurathu, S., Upare, S., Tietze, U., Costelloe, T., & Zhang, Z. 2022. World review of capture fisheries and aquaculture insurance 2022. FAO Fisheries and Aquaculture Technical Paper No. 682. Rome, FAO. https://doi.org/10.4060/cb9491en
Watson, J. R., Spillman, C. M., Little, L. R., Hobday, A. J., & Levin, P. S. (2023). Enhancing the resilience of blue foods to climate shocks using insurance. ICES Journal of Marine Science, 80(10), 2457-2469. https://doi.org/10.1093/icesjms/fsad175
