China to announce aquaculture insurance framework
By Mark Godfrey, SeafoodSource contributing editor reporting from Beijing, China
28 February, 2013
The eyes of the world aquaculture insurance industry will be on China next month with the government expected to announce the framework for co-funding of insurance cover for the country’s millions of aquaculture cultivators. The announcement is expected after the annual National People’s Congress, the annual week-long legislature, which sits next week.
Among the insurers watching closely is Jason Scott, aquaculture specialist at London-based FP Marine. He expects the announcement of reinsurance terms will be a “significant event” and is betting that the government announcement will have an effect similar to that when China’s agricultural ministry five years ago announced a reinsurance program for livestock. “Within five years [China] had become the world’s second largest reinsurance market.”
Scott believes government is keen to push ahead with aquaculture insurance in order to protect the country’s aquaculture industry while also ensuring the country’s food security. China’s aquaculture output accounts for 70 percent of the global total and covered 7.8 million hectares in 2011, up from 7.6 million in 2010, according to official data.
The nature of the business in China, with millions of small-scale players, means government has to be a co-funder, said Scott. “Traditional insurance players are more interested in the large corporate market players such as traders and processors.”
Rather than drafting insurance policies for individual producers based on technical knowledge of the industry, insurance of producers in China will be based less on technical criteria and more “treaty based” said Jason Scott. “Thus you’d have a set of indices based on weather risks and possible circumstances and you pay out if they happen... You could look at it on a regional basis, given there’s so many producers involved.”
Aquaculture insurance coverage remains patchy in Asia. In the region, Vietnam has trialed a government-funded aquaculture insurance scheme which was originally geared at rice farmers who also cultivate fish. Governments in other regional producers like Indonesia and Thailand however don’t get involved, leaving insurance to the private sector, said Scott.
Insurance policies have been trialed on a regional basis in China. For instance, the southeastern city of Fuding arranged for the Fujian Provincial Fishery Mutual Insurance Association to sign with Haichuan Food Co., Ltd. the province's first single policy aquaculture mutual insurance agreement, a mutual insurance policy for seaweed farmers. The agreement saw 1,108 acres of seaweed insured to a value of CNY 3.3 million (USD 530,000/ EUR 405,100).
The policy covers typhoons, torrential rains, flash floods and high temperature, among other eventualities. The agricultural ministry of Fujian Province, of which Fuding is part, has pledged to “gradually implement” aquaculture mutual insurance to “protect the provincial aquaculture industry against risks.”
Government and industry learned from disasters like Typhoon Chebi that in 2001 devastated the Fujian coastline and cost the seafood industry USD 270 million (EUR 206 million), only a fraction of which was covered by government payouts.
Players in the aquaculture insurance sector are keen to get a foothold in China, including FP Marine Risks, an accredited Lloyd’s broker with offices in Beijing and Hong Kong. The firm claims technical knowledge in aquaculture that is largely absent from China’s state-controlled insurance sector. Also London-based, Longline Environment Ltd U.K. supports aquaculture insurers in Asia with risk assessment services and insurance surveys.
While governments in Asia have begun to appreciate the benefits of insurance and begun to offer policy support, the pace of reform has been dictated by a powerful state-owned insurance lobby in most Asian producer nations. In China foreign players like Groupama however have been prevented from building the kind of scale required to finance building branches necessary to service the geographically-spread aquaculture businesses.
Local insurers like Shanghai Anxin and PICC suffered losses in the 1990s with loss ratios as high as 170 percent, a figure blamed on a shortage of risk assessment skills and a reluctance of insurers to go beyond a select group of species. Chinese insurers have also been unwilling to insure against diseases.
Chinese coastal aquaculture is also prone to storm damage from typhoons as well as outbreaks of white spot disease at shrimp farms. Another challenge to insurers and the sector alike is the onset of red tides in the country’s heavily industrialized coastal belts, as well as algal blooms.
A chance to lift standards in the industry through aquaculture insurance will not have been lost on Chinese policy makers who have made a priority of improving rural incomes and spending. FAO reports have highlighted the lack of knowledge of the benefits of insurance among producers as a barrier to the extension of aquaculture insurance. Jason Scott meanwhile believes China will be a key topic at the Aquaculture Insurance & Risk Management Conference in Istanbul in April. “Everybody there will be talking about developments in China,” he said.
28 February, 2013