Aquaculture expansion is creating demand for complex insurance packages and companies are turning to Lloyd’s to provide them.
Global demand has transformed traditionally small and independent aquafarms into huge commercial operations. Aquaculture now accounts for almost 50% of the world’s fish-for-consumption, according to the Food and Agriculture Organization of the United Nations (FAO).
“Aquaculture is a booming global industry. We’ve seen a growth in the size of the farms over the past five years and with it the aggregates involved,” says Robert Wells, Livestock/Aquaculture Class Underwriter with XL Insurance.
Between 1950 and 2004 world aquaculture grew at an average annual rate of 8.8%, reaching a global production of 59m tonnes in 2004 valued at $70bn. In the next decade the size of the sector is expected to double.
It’s no surprise, then, that demand for insurance cover is increasing.
Impetus for aquafarms
“The capture industry has reached its maximum potential,” says Wells. “Aquaculture has increased to meet the global demand for fish. In Norway, Chile, Canada and Scotland, salmon remains a big part of the industry due to the potential revenue it can generate. But China farms about 50 different species—the most important fresh water varieties are carp, bream and tilapia—and marine culture, which means molluscs, including oysters.”
Asia is a major aquaculture player. According to figures from the FAO, China accounts for around 80% of global farmed fish and oyster production.
“The bigger aggregates mean that companies are looking at how they can cover their risks, and Lloyd’s provides a significant global market for aquaculture firms. The subscription market offers the flexibility to meet the rising scale of the sums insured; and the rapid development of technology has contributed to the ability for the farms to grow in size.”
Mitigating risk
Farms face a number of significant risks.
“The biggest issue for underwriters is ensuring that husbandry on the farms is good. Everything stems from that,” says Wells. “Experienced firms are usually well aware of the risks they face and take steps to mitigate them. For example, when you get a large number of fish in an enclosed space then disease is a major worry because, potentially, it can spread rapidly.”
In recent months over four billion French oysters were killed by a disease which swept through the country’s oyster beds.
Growing stock sizes and rising values raise the spectre of potentially devastating losses. While technological developments are continually improving conditions, companies still can’t afford to remain without cover.
“Every year we see new technology and equipment that makes aquaculture more efficient and cuts risk,” says Wells. “It’s a significant growth potential and Lloyd’s has established itself as a centre for the coverage of risks associated with the industry.”
