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Aquaculture Insurance guide

What do I have to do to buy insurance cover? How do I go about it?

That will depend on what country you are farming in. Countries have their own insurance regulations, and these determine who can sell or handle insurance. In most countries insurance brokers, agents, and direct insurers can handle your business, but they are almost always governed by strict laws.

Insurance brokers and agents should act as intermediaries on behalf of insurance buyers, however, agents are generally tied to and represent a single company.

Brokers are independant, and their role is to represent the buyer's interests in dealing with the insurance market as a whole. An important part of their role is to know such things as - which companies will underwrite aquaculture business - what their financial standing is - how good they are at paying claims - how experienced they are at handling the business, and so on.

Direct insurers may compete to do your business directly with you, and not through a broker, communicating with you through their own agent to handle your account.

The first thing you need to do to buy insurance is to find an insurance broker, or an agent of a direct insurer, or even go straight to a direct insurer, to handle your business. Whichever route you take, its very important to try and find an organisation with experience of aquaculture. Its a difficult business, and there is no substitute for experience!


Who should I go to in my country?

Take a look at the section "Insurance Brokers & Agents" on this site, and see if there is already a specialist insurance broker in the database, in your country .

If there is, we recommended that you go to them, because aquaculture stock insurance is one of the most difficult sectors of insurance and there is no substitute for experience in the field.

If there is not, you can contact one or more of the specialist aquaculture leaders in the international insurance market who advertise on www.aquacultureinsurance.com If you cannot see any suitable organisation, email info@aquacultureinsurance.com, and we will locate a specialist for you.


Is stock insurance available to every aquaculture farm?

Insurance is available to many different types of farms in many different countries, but not to all of them. It depends on a number of things.


What does it depend on?

There are four important issues that insurance underwriters will look at very closely when looking at new business:
1)The insurance and other relevant regulations in the country where a farm is located.
2)The nature of the farming operation.
3)The standard of management of the farm.
4)The location and arrangement of the production facilities.

To some extent these overlap, however, perhaps the best way to answer the question is to say, that if your farm is very new or experimental, if it has a bad loss record, or if it is particularly exposed to risk in some way, it is unlikely that you will be able to arrange cover.

If your farm is not ruled out by one of these, it may still be ruled out by other things. For instance, by far the most important issue is how good your stock control is. Put quite simply - if you do not keep very good, regularly maintained, and accurate, stock control records, you will not be able to buy insurance! You can run the best farm in the world, with the healthiest stock, and it can be a very low risk operation, with the best risk management, but if you do not have good and accurate stock records, insurers CANNOT cover you!

Why is this?

Because you can never prove a loss if you cannot demonstrate how many fish you had before it started and after it finished. Every type of insurance relies on accurate financial quantification of losses, and if you do not have an accurate stock control system, there is no point in taking out a policy!

Its not just a question of numbers of stock, size is very important too, as are other things such as the amount of food you feed, and details of fluctuations in water temperature, and so on.


OK, so I keep good stock control records, what will I have to do to get cover?

You have to make contact with one of the specialist markets. Whichever specialist you contact, will supply you with one of their special aquaculture stock insurance application forms, which you will have to complete and send back to them.

These forms are quite complicated and require a lot of supporting documents and information, including maps and plans, photographs, and -yes! - examples of your stock control records.

If you want to see an example of an application form, there are several available; again, contact us at info@aquacultureinsurance.com, and we will arrange for a suitable application form to be sent to you.


What happens when I have done that?

Your completed application form would be sent to insurance companies and underwriters who specialise in the aquaculture stock mortality sector. If you are dealing with an insurance company agent, it will go to their company.

Whoever it is offered to will normally prepare quotations of terms and conditions under which they would be prepared to underwrite the risks of your business.

These terms will then be relayed to you by your broker, or by the company agent. You can discuss the terms offered, and if you have any points, or likes and dislikes about them, it is up to you to put them to the Company agent or your broker, and it is their job to do pass them on to the underwriter.

After negotiation, a final offer will made to you, which you can decide whether to accept of reject.

If you reject it, you may find that you have nowhere else to go, but if you accept it, the insurance company will normally put the terms you have bought into operation, and you will be required to pay the premium.

However, at some point during this process, you will in all probability have to go through an inspection by the insurer's specialist risk management inspector.

When the survey takes place depends on many things, not least of which is the view of the underwriter of your operation and its risks. It could take place before or after indications of rates have been provided to you. Terms and conditions may be offered to you "Subject to survey."


Who pays the cost of the survey?

That depends on how keen insurers are to get your business. If your operation is attractive to them, they may be keen enough to get your business, to pay for the survey. The reverse is also true - if they think it is high risk, you may have to pay the costs.

If you do pay the costs, it is sometimes possible to get a small premium concession to pay for it.


Is that the only survey I will have to undergo?

Probably not!

Most specialist insurers in this field will survey the farms they insure, on a regular basis, usually before the renewal of a policy takes place.


Assuming I get cover, what do I have to do next?

To a certain extent that depends on the type of cover you get, and the approach of the company you get it from. However, as a rule, there are several things you will be required to keep on top of as you go along, but your broker or the company's agent should brief you on the obligations you have to meet to maintain the insurance coverage.

The best advice we can give is - READ YOUR POLICY FROM END TO END!

Even if you are dealing with a broker or an agent, you must still read your policy very carefully. Then ask all the questions you can think of. If you think of others later, then call up and ask your broker or the agent about them. You really MUST understand the policy, how the insurance works, and what you have to do to complete your side of the arrangement.

Once you have read the policy, the first thing you need to do is to carry out any work or meet any conditions (these are often known as "warranties") that your insurers may attach to your policy as a requirement of insuring you. For example, you may be required to carry out certain risk management tasks (perhaps install an alarm system, for example), within a certain period. You must meet these requirements as soon as possible!

Next, you would be advised to set up certain operating procedures to ensure you are complying with your policy terms

For example, you must always be on guard and report to your underwriters, any significant changes you make to your farming routines or facilities. In fact, it is best to warn your underwriters in advance, before you actually make changes to your system - their policy usually gives them the right to be advised of significant changes. So set up a system of reporting such changes to your insurers, and, above all, MAKE SURE YOUR STAFF KNOW WHAT HAS TO BE DONE.

Another example is loss reporting.

Your policy will contain specific instructions as to what to do and who to contact if you have a loss. Make a note of what you have to do, and, again, BRIEF YOUR STAFF FULLY. It is a good idea to put up notices around your farm, giving details of who to contact if a disaster occurs, or something happens that may cause a problem. You cannot be on the farm all the time, so you need to make sure that the farm staff know what to do.

Finally, you are likely to have to send in regular stock value reports for your site, usually on a monthly basis, but sometimes quarterly; set up a system for doing that. It is a very important task, and one that might possibly affect how much money you get if you have a loss, so set up systems to comply with the requirement to report values.


Why will I have to send in stock value reports?

It is in your interest to do so! Aquaculture insurance is quite expensive, and you don't want to end up paying more premium than you need to.

In recognition of the fact that values on a farm fluctuate over the year, insurers try to levy the premium on the "average" value that is on the farm, adjusting the premium up or down, according to the outcome for the year.

The actual values that develop on a farm are influenced by many factors, so to be fair to both parties it is best that values are reported each month, then averaged out at the end of the policy term.

If the farm has had a good year, values will be high and it is only right that the underwriter should get an increased premium for covering them. Conversely, if the farm has not done so well - maybe there have been some small, uninsured losses - the farmer deserves a refund because the full cover offered by the policy has not in practice been used.

These fluctuations emerge from the reports that are produced and sent to the underwriters each month.


You talk about "uninsured" losses; I thought the purpose of insurance was to cover losses. Isn't it?

Yes it is, but a sensible way of covering them has to be put in place.

For example, there is a background mortality going on in every farm - no matter how good it is! There is no point in structuring a policy that pays for every creature that dies; it would just be a pointless exercise in raising premium to cover losses that are inevitable. So a way has to be found to avoid swapping money for all the "normal trade mortalities" that occur.

The market has developed techniques for achieving this in many classes of insurance. The market applies self-insurance factors to policies; these are called called "deductibles". They are used in many types of policy, from automobile policies to household contents policies. In aquaculture, however, they tend to be much higher than in other classes.


What are deductibles? How do they work?

A deductible is an amount that is deducted from a loss. Or to put it another way, if the value loss falls below the deductible amount, no claim is paid.

Deductibles in aquaculture are usually percentages of the amount at risk either across the whole farm, or in a particular production unit. In aquaculture they can be as high as 10%, even 20% or 30% in some cases; that is because the industry has proved to be very high risk, and losses of those levels are quite common.

Here's an example of how deductible might work:

If a farm has $1,000,000 in value at risk, a deductible of 10% or 15% might be applied to all losses. I.e. a loss would have to exceed $100,000 or $150,000, before anything was paid by underwriters. The percentages vary from policy to policy, but they seldom drop below 10%.


Can I pick what deductible suits my operation?

There is a certain degree of leeway for farms to pick the deductible arrangements that suite them, but not a lot. Deductibles tend to be substantial.


Why are they so high? 10% or 15% seems very high?

Historically, aquaculture has a very bad loss record. It is a fact of life, that losses of around 10% or 15% are quite common; in some sectors of the industry., losses of around 30% are common.

As we said in answer to the question above, the purpose of deductibles is to avoid underwriters and insureds swapping premiums over inevitable losses - it does not make sense to bring them into the insurance arrangement. So high deductibles are going to be used that take them out the common losses - with a margin on top, that enables the underwriter to be sure he has eliminated losses of a size that occur frequently.

Of course, by eliminating the inevitable losses, the premium is kept as low as possible!


How much is cover going to cost?

Again, that depends on many different things - the type of cover you are seeking, the nature of your operation, the risks it faces, the deductible(s) you have, and so on. It is a very broad question that can only be answered by developing underwriting information and going into the market to see terms are available.


If I have any other questions, how can I get in touch with you?

If any of the above answers to the questions above do not fully explain things to you, email info@aquacultureinsurance.com and ask any other questions you would like answers to.


 
 

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