China pushes insurance coverage for high-risk seafood sectors

Published on
May 5, 2015

Two of China’s key seafood-producing regions have made another effort at extending insurance to the highly fragmented aquaculture sector. The coastal city of Yantai has launched what it’s terming the first mariculture weather index insurance policies — part of a new effort to get 90 percent of local farmed seafood stocks insured by 2020.

Home to more than 70 percent of the country’s cultured shellfish output, Yantai has convinced the local office of Tai Ping Insurance Co., a state-owned giant, to write policies designed to trigger payments to producers when weather conditions exceed certain heat levels.

Over 90 years of local weather data for the Yantai area were assessed in the design of the policies, according to a spokesman for Tai Ping, Zhang Hewei. “When the temperature rises to 32 [degrees Celsius], the average mortality rate for sea cucumbers is 10 percent with that figure and we use this data to calculate our premiums.”

Yantai authorities are particularly keen to allow producers to quickly reboot production after weather mishaps, explains Sun Lidong, an official at the Yantai office of the Ocean & Fisheries Bureau, a government agency. Government will cover up to 40 percent of the cost of premiums, depending on the entity covered, according to Sun. The local and national governments have long identified extending insurance to its fisheries and aquaculture sector as one of the keys to improving productivity and efficiency in the sector, he explained.

Separately, meanwhile, the key seafood hub of Dalian has brought a local state-run insurer on board for a pilot coverage of fish tanks at the Da Hei Shi aquaculture base outside the city. The People’s Insurance Co. of China (PICC) and Dalian Tian Zheng Co. are both on board the scheme, which caps any individual pay out at CNY 10 million (USD 1.6 million; EUR 1.4 million).

China’s government has traditionally been able to direct state-owned insurers to cover fisheries but there were big losses that led to dominant players like PICC in the past decade shifting focus away from agriculture and aquaculture to focus on the booming real estate sector. Other local insurers like Shanghai Anxin stepped forward but have battled to secure profitability from writing policies for the seafood sector. French-based Groupama (Groupe des Assurances Mutuelles Agricoles) has meanwhile set up shop but so far has a small footprint in the Chinese insurance market.

There is certainly potential for business given as little as 5 percent of China’s 8 million hectares of aquaculture ponds are insured, according to the 2014 edition of the China Fisheries Yearbook, a government-published collection of statistics. With Chinese seafood production under pressure from a rising cost base, officials including the top fisheries (and vice minister for agriculture) official Niu Dun have frequently stated that better insurance coverage will encourage smaller producers in particular to up their production in the knowledge that their production is covered.

The loss ratio for some insurers of shrimp ponds ran as high as 1,400 percent, according to a Seafoodsource analysis of settlements by Anxin and PICC. Not surprisingly, commercial insurers have shied away from the Chinese aquaculture sector. Likewise, it’s been very hard to attract the reinsurance market to China’s aquaculture and fisheries insurance policies.

Under Niu Dun’s direction, the government has recently also been encouraging better sharing of information, with the ministry of agriculture compelling some key production regions and markets to publish information on pricing and production in a timely manner. The idea being that farmers will base species selection and time production according to market trends.

Government-subsidized mutual insurance schemes are proving 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 bankability of the industry, which remains divided between big operators that count accurately and small players with little know-how in collecting data on stocks.

Mutuals include Jiangsu Fishery Mutual Insurance Association, a government-supported body seeking to expand insurance among local producers. Based in Nantong city, a hotbed of crab production, the Association has worked with local aquaculture cooperatives of freshwater crab breeders. Aside from sharing risk, mutual insurance schemes also help prevent insurance fraud and risk management — two problems that have turned commercial insurers off the aquaculture and agriculture markets in China. The nature of mutual insurance means members can regulate and weed out false claims within their membership while also building up data that helps insurance companies, according to secretary general of the Association, Chen Yao.

Foreign insurers have been keen to access the Chinese insurance market, which is growing fast with overall CNY 5 trillion (USD 805 billion; EUR 722 billion) in policies written in 2014, according to the China Insurance Regulatory Commission. But China has made it difficult for foreign insurers to enter the market, according to a Beijing-based executive at a major European insurer seeking to expand in China.

“Since the big local players are state owned companies they have a lot of political influence. Government has allowed multinationals into areas that the local firms don’t want to cover, like agriculture and fisheries,” said the executive, who asked not to be named. China is “a big challenge” for multinationals, he added, “given you’re starting from scratch and without quality research or local operations. My sense is that the local firms want to see how risk analysis and pricing is done and learn from this.”

Several dilemmas remain: While the state-run insurance sector has been liberalized this has meant more commercially driven operators are less willing than ever to engage what are perceived to be risky sectors like aquaculture.

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