The early mortality syndrome (EMS) virus that has badly hurt Asia’s shrimp producers could prove a turning point that spurs tighter control of cross-border spread of aquaculture disease by governments. That’s according to aquaculture insurance expert focused on growing coverage in Asia. “The future spread of disease may be much more controlled as a result of the EMS experience,” said Paddy Secretan, head of U.K.-based Aquaculture Underwriting Management Services (AUMS).
Pointing to a clamp down on cross-border smuggling of shrimp in Latin America, Secretan noted how governments have also been seeking to intervene after, in some producer states, the insurance industry has crumbled with the onset of EMS. “Insurers in Mexico and Vietnam for instance developed coverage for shrimp but, allegedly with the onset of EMS, these schemes disappeared,” said Secretan whose firm convenes an aquaculture insurance and risk management conference, with the latest held recently in Hong Kong.
While Asia accounts for 89 percent of aquaculture output in (2010 figure from the UN’s Food & Agriculture Organization) aquaculture here remains lightly protected by insurance cover. “I’d be surprised if there’s more than 5 percent coverage [of aquaculture] in China,” said Secretan. There has been much talk of extending aquaculture coverage among policy makers in Asia but insurance cover remains limited, even in China where government has been subsidizing premiums in a bid to improve insurance coverage of the huge aquaculture sector here.
There’s “absolutely miniscule” penetration by western aquaculture insurers in China, according to Secretan, “but then penetration of the aquaculture insurance sector in general is very small there, compared for example to Norway where almost 100 percent of the market is insured.”
This comes at a time when insurers have come to see aquaculture as the fastest growing agricultural sector worldwide “and they’re not getting the benefit of it…” added Secretan. Insurance cover of the sector has not grown to keep pace with the fast growth in aquaculture and the insurance market is “starting to realize that they’re missing the boat,” he said.
It may be that the insurance industry is scrambling to understand the industry. Aquaculture insurance in Asia is potentially a USD 3 billion (EUR 2.2 billion) business but the challenge is to adapt coverage to new, lower value species said Jason Scott, head of Aquaculture and Livestock at London-based insurance broker FP Marine Risks. “Although Asia is the leading producer of aquaculture, the vast majority of production is uninsured…partly due to limited information transfer detailing available products and services and collaboration to develop innovative solutions.”
A lack of data is a big challenge for insurers in Asia, said Rego Schneider, head of emerging risk management at Swiss Reinsurance Co. (Swiss Re), the world’s second-largest reinsurer. Indeed, according to the FAO November 2013 Food Outlook Report, aquaculture, growing at 5 percent to 6 percent annually, continues to boost overall fish supply. Historically, aquaculture-focused policies have been based on the ability to count the stocks, with compensation based on physical count stock control. This is more difficult to do with categories like shrimp: Secretan believes shrimp will have to be covered in a similar manner to agricultural crops such as wheat.
Apart from offering financial protection to producers, insurance would also encourage financiers to invest in aquaculture “with a greater degree of security and confidence,” said Scott, who also sees the industry in Asia benefitting from environmental and food safety factors in better coverage. “Insurers help to encourage producers to adopt best practice standards on biosecurity, water quality and environmental safety which in turn improves food quality, production efficiency and sustainability.”
For coverage to grow, Secretan believes insurers will have to launch products that cater for the smaller aquaculture producers “who find current premium rates too high and terms too restrictive.” He believes a ramp-up in coverage for aquaculture will be possible if insurance products are better tailored for small and medium (SME) sized businesses in aquaculture.
“Terms and conditions attached to aquaculture policies have been over-restrictive but this is changing with growing interest from reinsurers,” said Secretan. The market has focused too much on the mega risks that have brought mega losses — from storms, diseases and other major causes — making underwriters extremely cautious, explained Secretan.
While aquaculture could prove to be one of the few new drivers of growth for the agricultural insurance industry but this will also require input from governments, said Secretan: “Insurers can’t pick up the systemic risks of the industry. Governments will have to help underwrite those — as they do in sectors of agriculture. And there is incentive for them to get involved because of the export earnings and jobs at stake.”
Similarly, “a legal framework will have to be put in place,” said Secretan, “and governments will need to set appropriate legal frameworks that address compulsory slaughter in the case of disease outbreak, for instance, as well as a framework for restriction of movement, and a sound veterinary inspection infrastructure to police the legislation.”
