Subsidized premiums and nationwide pilots are part of a big push to increase coverage of aquaculture by China’s government, worried about protecting an ever-expanding freshwater aquaculture sector. One of the regions keenest to get covered is the easterly province of Jiangsu, home of a giant freshwater crab aquaculture sector, which has been forcing insurers and producers to work together.
“There is enthusiasm among fish farmers to get insured,” explained Chen Yao, secretary general of the Jiangsu Fishery Mutual Insurance Association, a government-supported body seeking to expand insurance among local producers. Based in Nantong city, Chen’s organization has since 2012 arranged cover for 42 cooperatives and 28,000 mu (15 mu equals a hectare) of mostly freshwater crab raising farms. “We are a non-profit body and must cross the river by feeling the stones,” said Chen. who believes he can get coverage up to 50,000 mu by year’s end.
The 2013 typhoon and high temperatures hurt producers locally but some believe compensation under the pilot remains modest: Changshu Jintangshi Aquatic Foods Co., one of the companies covered, operates 1,080 mu of ponds, of which 500 mu is covered at maximum CNY 2,000/mu (USD 322, EUR 236) in payable compensation. This figure is “negligible,” said company chairman Zhang Jianlong, referring to a clause that limits compensation to 2 percent if temperatures rise to 37 degrees Celsius. “The damage done at that temperature would be far greater than the insurance we’d get,” he explained.
In Anhui province, another freshwater hub in easterly China, Anhui Guo Yuan Agricultural Insurance Co. linked with the national China Fisheries Mutual Insurance Association and the provincial fisheries bureau in Anhui to cover ten aquaculture cooperatives with CNY 4.4 (USD 0.71, EUR 0.52) premiums and CNY 120 million (USD 19.3 million, EUR 14.1 million) worth of coverage.
“Insurance is like a guarantee which can reduce losses and get producers back to production quickly,” said Wei Yanbao, Communist Party secretary at the aquatics products department at Xinhuang local government in Anhui. But coverage right now is centered on a few valuable species like sea cucumber, shrimp and (to a lesser extent) crabs in a limited number of geographical areas, says Wei. SME-sized players are often poorly managed and hard to bring into coverage. Also, the high loss ratio — as high as 300 percent (of premiums paid) in some cases — means insurance firms have shied away from aquaculture, he added.
Mutual bodies are central to China’s plan to extend coverage. Reducing costs and extending insurance through mutual organizations of multiple seafood producers has been key to insurance coverage elsewhere, helping to improve the attractiveness of the industry to financiers: aquaculture remains divided between big operators who count accurately and small players who “find stock control difficult,” said Paul Koronka, CEO of Regis Mutual Management, a U.K.-based firm which assists in setting up and running mutual bodies. For seafood or fishery mutuals to work in China insurance providers will have to broaden the range of cover beyond equipment and stock, said Koronka.
Meanwhile, moral hazard is a big challenge to insurers, according to Yao, who said insurance fraud is a major problem in extending coverage nationwide. A well-established mutual would deal with the moral hazard issue, said Koronka. “They [mutual members] know who the cowboys are.” The ability of mutual members to police each other would encourage reinsurers but would also raise standards across the industry, he explains, adding that mutuals allow costs to be tailored and act as a conduit for government bodies.
Mutual bodies encourage better risk management ethos in producers: likewise, said Koronka, these bodies would serves as repository for vital data and statistics and would help the sector to focus on loss prevention and risk management. “The mutual model ensures economies of scale for insurance cover which can then in turn help ensure easier access to finance for producers while for governments they’re politically beneficial in protecting local jobs and revenues and thus there’s an incentive for governments to provide umbrella cover for systemic risks.”
Set up originally by the Ministry of Agriculture as the Chinese Fishing Ship Owners Mutual Assurance Association (the name changed in 2007 to the China Fishery Mutual Insurance Association) the Association claims to cover more than 90 percent of China's fishery insurance policies. Fisheries insurance was actually stronger in the 1990s but with the increased commercialization of the insurance industry big players like the People's Insurance Company (PICC) started to back out due to a high loss ratio and “untimely payment” among other factors, according to the association.
