P.A.D. Secretan
Managing Director,
AUMS
In North America, aquaculture insurance is treated similarly to agriculture crop and livestock insurance. The agricultural insurance programme in the United States is complex and heavily subsidized (Skees, 2000), and its traditional crop insurance programme has grown from insuring only losses from shortfalls in crop yields to insuring losses in gross revenue. Unfortunately, these income insurance programmes have become new mechanisms for transferring subsidies.
The US Agricultural Risk Protection Act was passed in 2002 to provide funds to investigate the potential of offering risk management protection to previously underserved producers. The Risk Management Agency of the United States Department of Agriculture (USDA) and Mississippi State University formed a partnership to conduct a large-scale study to determine the feasibility of providing risk management protection in the form of insurance and risk management tools for aquaculture crops. Evaluations were made for four major subsectors of the industry, namely baitfish, channel catfish, trout and salmon.
In Canada, the Farm Income Protection Act (FIPA) provides federal contributions to a crop insurance programme. The goal is to stabilize farmers’ incomes by minimizing the economic effects of crop losses caused by natural hazards, such as drought, flood, hail, frost, excessive moisture and insects. The programme is delivered through the provincial governments. The Act does not directly embrace aquaculture, although support has been given to aquaculturists in the past. However, a study of the implications of bringing in aquaculture is currently ongoing.
In the early stages of the development of the aquaculture in Canada, the emerging industry was subsidized. Particularly, the government financially supported an increase in research capacity in the Department of Fisheries and Oceans (DFO) and Canadian universities. Also, a variety of federal tax incentives for farming and small businesses, the extension of farm credit facilities to fish farmers, and targeted expenditures through regional development agencies (Howlett and Rayner, 2003) were used to promote the industry. However, the Office of the Commissioner for Aquaculture Development (OCAD) noted recently that the various kinds of income support and stabilization programmes, including crop insurance, were not available to aquaculture producers.
The combined aquaculture production of the United States and Canada in 2004 was estimated at 752 000 tonnes. Channel catfish and American cupped oyster, with 286 000 tonnes and 110 000 tonnes respectively, were the main aquaculture species cultivated in these two countries. Atlantic salmon culture reached an output of 97 000 tonnes in the same year. Compared to 1995, a decade earlier, the aquaculture production in North America has increased tremendously. In 1995 the total production was estimated at 479 000 tonnes, of which channel catfish production assumed 203 000 tonnes. In recent years, a few aquaculture species have shown potential for further development. A significant increase could be seen in American cupped oyster production in the United States. The cultured volume increased from 38 000 tonnes in 2000 to 105 000 tonnes in 2004. Similarly, in the United States, the production of northern quahog (hard clams) more than doubled between 2003 and 2004, from 32 000 tonnes to 66 000 tonnes. Red swamp crayfish is another species that showed large growth rates in production. In 2000 the production volume was less than 8 000 tonnes; this increased to almost 32 000 tonnes in 2004.
The Atlantic salmon production on Canada’s Atlantic coast was fairly stable in recent years, at around 35 000 tonnes. The production of the same species on Canada’s Pacific coast fluctuated since 2000 between 39 000 tonnes and 72 000 tonnes annually. Canada’s blue mussel production is fairly stable at around 20 000 to 22 000 tonnes annually since 2000.
In value terms the aquaculture production of Canada and the United States was estimated at around US$1.3 billion in 2004. An increase of US$150 million could be observed from 2003 to 2004. In comparison, in 1995 the total value of aquaculture production of the two countries was estimated at US$961 million. In the United States in 2004, channel catfish generated the highest value, approximately US$440 million. Atlantic salmon production in Canada realized a total value of around US$253 million. Other species that generated production values of over US$50 million in the United States in 2004 were rainbow trout, Atlantic salmon and hard clams.
6.3.1 Canada
Aquaculture insurance has been available in Canada since the mid-1970s, on both the east and west coast. The main insured species are Atlantic and Pacific salmon, mainly in onshore hatcheries and offshore grow-out cages. Some policies have been placed on non-extensive shellfish stocks on long lines. In recent years the industry on both coasts has been rationalized, with a number of independent producers either going out of business or taken over by multi-national companies. Most of these multinationals have group insurance policies placed outside Canada, which cover all their international production facilities, including those in Canada.
There is no indigenous aquaculture insurance market in Canada. Cover has been available through three main channels:
through the group insurance facilities of the large multinational producers, under which their Canadian subsidiaries can be covered.
6.3.2 The United States
Aquaculture insurance has also been available in the United States since the mid- 1970s, but cover has not been as widely taken up as in Canada. This is because the main efforts to provide cover have been directed at the catfish industry. As a consequence of its extensive nature and its disease record, catfish aquaculture has attracted insuring terms and conditions from underwriters that most farmers have not found acceptable.
Numerous unsuccessful attempts have been made to establish insurance schemes for catfish farms, but all are considered failures. A number of salmon, trout, striped bass and abalone operations are either covered or have purchased insurance from the private sector in the past; some clams operations are already covered by the Federal Crop Insurance Program. Extensive shellfish production systems are not considered insurable. The same applies to extensive crawfish production.
Despite the failure of the private insurance sector to provide cover that catfish farmers find acceptable, US fish farmers as a whole are keen to get protection and have lobbied extensively to get aquaculture covered under the Agricultural Risk Protection Act. The key issue connected with such a development centres around the premiums that are levied and their relationship to the cover granted under the policies issued. The question always arises - Where does the line between insurance and subsidy fall?
It is reasonable to assume that the demand from aquaculture entrepreneurs for aquaculture stock insurance in North America is similar to those in other regions. All producers seek competitive cover for economically viable premiums, appropriately designed application forms and arrangement procedures, policy wording that are well drafted, free of ambiguity, clear and simple to understand, and effective claim handling and payment, all supported by a comprehensive risk management framework.
6.5.1 Canada
The number of policies in effect in Canada is unknown, but it is probable that a substantial part of Atlantic and Pacific salmon production stock is insured on both the east and west coasts.
6.5.2 The United States
The actual number of policies in effect in the United States is unknown, but is likely to be less than one hundred.
The cover offered by insurers to aquaculture is generally available to US and Canadian producers. Terms and conditions vary from "all risks" to "named perils", with rates, self-insurance factors and excluded perils, structured according to physical location, design and management standards of each individual insurance applicant. As is the case in all other regions, in certain situations individual perils will assume a higher profile than in others, and insurers structure their policy terms and conditions accordingly.
Many species are cultivated in the United States and Canada, albeit some are only raised in very small quantities. The aquaculture insurance market is able to handle all of them, subject to the management and arrangement of each production unit. However, it appears that the species actually covered by insurance in the United States are limited to hybrid striped bass, tilapia, trout, salmon, mussels on longlines, hard clams and some oysters.
Policies have also been arranged on abalone and some clams are insured under the Federal Crop Insurance Program.
The species currently insured in Canada include Atlantic salmon, Pacific salmon, cod and mussels.
Aquaculture insurers will provide cover on species reared in most intensiveand semi-intensive aquaculture systems. These include marine cages, long lines, freshwater ponds, green water tanks and raceway and recirculation systems. Terms of cover will reflect information given in response to application form questions. It may prove difficult to arrange insurance on extensive shrimp and shellfish operations. Hatchery and nursery operations may be insured as well.
6.9.1 Canada
Aquaculture insurance in Canada is classified as Business Insurance (Office of Superintendent of Financial Institutions Canada Notice 2005-02). Foreign insurers therefore require a licence before they can underwrite aquaculture business, including aquaculture stock. The industry in Canada is served by the international market, directly by foreign specialist companies and Lloyd’s of London who have obtained licences or by Canadian companies backed by specialist reinsurance. The subsidiary production companies of the major international aquaculture producers are generally insured under group policies arranged by their head offices.
6.9.2 The United States
Two US companies have been involved in underwriting aquaculture risks; however, it is believed that only one involved in the market as of 2005. Lloyd’s of London is licensed to underwrite risks in all US states. However, it is thought that very few US producers are in fact insured, a situation that is likely to change if the Federal Crop Insurance Program provides cover on aquaculture crops.
One of the US aquaculture insurance providers does not automatically carry out inspections of all the farms that they insure, though they do send their agents to visit some risks. This appears to be an exceptional approach, as most specialist insurers in the United States and Canada use site surveys to assess the physical risks inherent in production units and to ensure that high standards of operation are always maintained on farms that they insure.
Surveys are generally carried out by individuals who have either been trained in aquaculture inspection techniques or who are drawn from the insurance industry’s worldwide inspection force of professional surveyors. Though the latter are unlikely to have experience of the peculiar risks and hazards of aquaculture, many of their skills are directly relevant to the physical arrangement and components of aquaculture systems. This especially applies in the case of marine sites, sites that use extensive pumping and aeration technology, and those that rely on sophisticated alarm systems.
The insurance industry’s marine surveyors are familiar with the extremes of wind and wave forces, and with the currents and tides that occur along local coastlines, and can materially assist in the location and maintenance of cages and their moorings. Insurance companies’ electrical and mechanical engineering surveyors can evaluate generators, pumps and alarm systems used in aquaculture operations to ensure that they are appropriate for each job, and ensure that they are properly installed and maintained. In addition, there are specialist insurance surveyors in numerous other disciplines, including health and safety, fire and food processing.
Biological risks present different risk management challenges for underwriters and need to be surveyed separately. Disease, for example, is one of the major economic perils for any aquaculture stock operation and a major source of aquaculture insurance claims. Biological surveys are therefore an important part of the risk evaluation/management process.
The handling of aquaculture claims in Canada and the United States is comparatively routine. There is an extensive loss adjuster network throughout North America. Although few US adjusters are familiar with adjusting aquaculture losses because comparatively few US farms are insured, there are very experienced aquaculture loss adjusters in eastern and western Canada. These loss adjusters can be used by insurers to handle losses anywhere in North America. Both countries have support networks of excellent veterinarians and diagnostic facilities, as well as of sophisticated academic research organizations and institutes.
6.12.1 Canada
Severe losses have occurred on both the east and west coasts in the late 1970s and early 1980s. The industry on the west coast experienced a high level of claims in the early days of its development, including major losses from disease and plankton blooms. There have also been substantial losses from disease (especially infectious salmon anaemia [ISA]) on the east coast, and substantial losses in the 1980s from perdition predation by seals. There was a major superchill event in first quarter of 2003, which is alleged to have resulted in insurance payments of around US$21 million to the aquaculture industry.
6.12.2 The United States
Historically, the catfish industry has suffered a succession of disease problems which it is believed have not been covered by insurance. There have also been a number of natural disasters to shellfish industries caused by hurricanes and some major plankton blooms, none of which are believed to have been insured.
The need for aquaculture insurance is well established in both countries. However, the question is whether cover on livestock will be provided by the private aquaculture insurance industry or by government-sponsored crop insurance programmes. If the former, the premiums charged will have to reflect commercial considerations; if the latter, unless premiums, cover and claim settlements reflect true spreading of risk, the protection will cease to be insurance and will move into the area of subsidy.
The authors’ recommendations to the industry in North America are similar to those listed already under chapter 5.14 for Europe:
to review lessons learned and establish an international programme for awareness-raising and capacity building to promote the use of aquaculture insurance;
to improve the collection and analysis of information on the aquaculture insurance market as part of a risk management strategy to sustain an increasingly global aquaculture industry.
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[8] Please see Chapter 2,
section 2.2, footnote 2. |
