THE AVAILABILITY OF AQUACULTURE CROP
(STOCK MORTALITY) INSURANCE
by P.A.D. Secretan
Aquaculture Underwriting & Management Services
112 Malling Street, Lewes, East Sussex, BN7 2RJ, U.K.
Tel No: + 44 (0)1273 488094 Fax No: + 44 (0)1273 488095
Email: [email protected]
This publication was made possible through support provided by USDA-Risk
Management Agency through Mississippi State University under the terms of
Agreement No. 01-1E-0831-127. The opinions expressed herein are those of the
author and do not necessarily reflect the views of the USDA-Risk Management
Agency or Mississippi State University.
INDEX
Page No.
1. Introduction
1
2. Insurance Availability at Market Level
2.1 Introduction
2.2 Important Market Issues
2.2.1 Size and Sophistication of the Industry
2.2.2 A Technically difficult industry to insure
2.2.3 Adequacy of Support Services and Industry Skill levels and Equipment
2.2.4 Underwriting and Broking Skills
2.2.5 Legal Factors
2.2.6 Aggregation of Risks
2.2.7 Underwriting Expenses
2.2.8 Acceptability of Premium Levels and Terms and Conditions
2.2.9 Risk Spreading Techniques
2.2.10 Underwriting Profitability
2.2.11 Market Capacity and its Future
2
2
2
3
4
4
5
6
7
9
9
10
11
3. Insurance Availability at Farm Level
3.1 Introduction
3.2 Processes involved in arranging cover
3.2.1 Using a Specialist Broker or Agent
3.2.2 Completing an Application Form
3.2.3 Obtaining an “Indication” Of Rates, Terms and Conditions
3.2.4 Insurance Surveys
3.2.4.1 Physical Surveys
3.2.4.2 Biological Surveys
3.2.4.3 In-house Survey Organisations
3.3 Terms, Conditions and Policy Structures
3.3.1 Policy Formats
3.3.2 Common Clauses, Definitions and Exclusions
3.3.2.1 Analysis of Common Clauses
3.3.2.1.1 Basis of Valuation
3.3.2.1.2 Premium Adjustment Clause
3.3.2.1.3 No Claim Bonus Clause
3.3.2.1.4 Average Clause
3.3.2.1.5 Subrogation Clause
3.3.2.1.6 Non-disclosure
3.3.2.1.7 Material Changes Clause
3.3.2.1.8 Loss Reporting Clause
3.3.2.1.9 Notice Clause
3.3.2.1.10 Sue & Labour Clause
13
13
14
14
14
15
15
16
17
18
19
19
19
20
20
21
22
22
22
23
23
23
24
24
INDEX/continued
3.3.3
3.3.4
3.3.5
3.3.6
3.3.7
Specific Clauses, Definitions and Exclusions
3.3.3.1 All Risks Covering Clause
3.3.3.2 Named Perils Covering Clause
3.3.3.2.1 Land Based Systems
3.3.3.2.2 Marine Systems
3.3.3.2.3 Key Named Perils Policy Clauses, Definitions and
Exclusions
Self-Insurance Factors, Bases Of Valuation
3.3.4.1 Deductibles and Franchises
The Rating Process
Binding Coverage
Operating the Policy
Page No.
24
24
24
24
25
25
26
26
27
30
30
4. The make-up of the Underwriting Market in 2003
4.1 Availability of Insurance, Specifically in the USA in 2003
4.1.1 The General Situation
4.1.2 Constraints on the Availability of Cover in the USA
4.1.3 Trends in Availability of Cover in USA
4.2 Worldwide Insurance Players in 2003
4.3 Countries where Aquaculture Insurance is transacted, or in which there
exist interests in stock which are insured, or have been insured in the past
31
31
31
32
32
33
33
Acknowledgements
34
Appendices
35
Executive Summary
This report provides a snapshot of the availability of aquaculture stock insurance in the 4th Quarter
of 2003. It addresses availability of stock insurance at two fundamental levels—market level and
farm level—and examines the prevailing situation in US and international aquaculture insurance
markets.
At the international and local market level many factors impact on availability, including the
presence of local aquaculture support services and skills, accessibility of appropriate insurance
skills, legal factors, level of underwriting costs, acceptability to producers of insuring terms and
conditions, aggregation of risks, application of risk spreading techniques, underwriting profitability
or lack of it, and, most importantly, availability of insurance market capacity.
The report notes that availability of insurance at farm level depends on the risk exposures of the
farm and in particular on farms’ ability to meet operating standards required by insurers, which are
based on their experience in the industry. It deals with the processes of obtaining insurance,
including using specialist brokers and agents, completing comprehensive application forms, and
undergoing site surveys of various kinds. The report examines some of the standard insuring terms
and conditions that apply to aquaculture stock insurance, listing key policy clauses and explaining
their application in the context of different farming systems. Also discussed are rating processes and
structures, and the processes of putting insurance coverage into effect on a production unit.
Throughout the report, reference is made to the structure and profitability of the insurance market
for aquaculture stock, both internationally and in the USA. At the time the report was compiled, the
situation in all markets was one of very constrained availability of aquaculture cover. This stems
from very poor underwriting results across the industry, caused by severe losses in almost all areas
of industry that are insured. Some examples of the losses the industry has experienced are given.
The final section of the report examines the makeup of the insurance market, providing lists of the
companies that provide capacity, internationally and in the USA. In the USA there is little
indigenous underwriting capacity; such cover as is in place mainly involves subsidiary companies
of international fish farming producers, with the cover being provided under the worldwide
insurance portfolios of these organisations. These facilities are usually underwritten by primary
insurers in the European market, backed by reinsurance protection provided by a limited number of
reinsurance companies, again mainly European ones. Lists of the principle insurers and reinsurers
are provided, alongside a list of those countries in which insurance is known to be conducted.
In a series of appendices, examples of different types of insurance policy wordings are provided,
along with relevant application forms that must be completed to obtain cover.
The report does not directly draw conclusions as to the likelihood of aquaculture insurance
continuing to be available. However, the reader will deduce that the market is not healthy, and
future availability of cover is in some considerable doubt.
1
1. Introduction
A report on the availability of any specialist class of insurance can only be a snapshot of what a
diverse and somewhat secretive service industry is making available at the time when the report is
compiled.
All sectors of the insurance market undergo constant change. Insurers enter and withdraw from
individual classes, on the basis of decisions influenced by many different considerations and
constantly changing criteria. For example, insurers1 may publicly withdraw from a class of
insurance, only to write an individual account because an important client or broker who brings in
other business offers it. Additionally, an underwriter may also accept business in a class he or she
has withdrawn from, because the terms and conditions offered on a single risk are particularly
attractive. Finally, and most importantly, an insurer may withdraw from a class because its
underwriting capacity may be better used in other classes.
If the underwriters in the market are constantly changing, so too are the terms and conditions that
are available from them. Change is brought about by many factors, including new developments in
an industry (change is constant and rapid in aquaculture) as well as by practical underwriting
experience. In order to understand change, especially in a class such as aquaculture, it is necessary
to understand the history of the class, how it has evolved, and why things are done in a certain way.
This report therefore focuses substantially on the processes involved in purchasing insurance, and
especially on the terms, conditions and rates that may be available to the producer who seeks
insurance cover. It also examines the structure of the policies used in the aquaculture insurance,
outlines some of the losses and difficulties the class faces, and explains some of the history behind
the various techniques used by underwriters in the market. The purpose of covering the history and
evolution of the market is to provide the background information on why certain types of cover are
not available, or why particular procedures have to be gone through.
The availability of insurance in any class is governed by factors that operate at two levels–at
general market level, and at individual risk level. There may be a healthy general market, with
plenty of underwriters competing to get business, but an individual risk may find that coverage is
unavailable because of micro issues associated with its specific situation or circumstances. This
report addresses the issues of availability at both levels.
It should be stressed that the future of the contemporary aquaculture crop insurance market is by no
means guaranteed. Availability of aquaculture insurance depends on underwriters making a profit
from their activities, which to date, it appears that they have not been able to do, at least on any
consistent basis! Therein lies a lesson for all concerned in the industry!
1
The terms “underwriter” and “insurer,” and “underwriters” and “insurers” are used extensively throughout this report.
In general, “underwriter” is used in respect of the individual who sets terms and conditions on a particular piece of
business, and who oversees the conduct of the policies for which he is responsible, whereas “insurer” and “insurers”
tend to refer to the organisations and corporations to which individual underwriters belong and whose financial capacity
the individual underwriter is responsible for committing, when providing insurance cover.
2
2. Insurance Availability at Market Level
2.1. Introduction
For there to be a market in any class of insurance, there have to be insurers who are prepared
to provide insurance on risks within the class. However, every insurance company and
underwriting organisation is restricted, as regards the amount of business (premium!) it can
take on, by the size of its capital base. Thus, for any insurer to commit part of its underwriting
capacity to a class like aquaculture, it has to be confident that it can make an underwriting
profit.
Such considerations mean that there is constant internal competition going on within
underwriting organisations as to which classes of insurance are potentially the most profitable
to allocate a proportion of their capital base to. Aquaculture crop insurance is therefore in
constant competition with all the other classes of insurance (marine, aviation, auto,
homeowners, etc.) for a share of every insurer’s underwriting capacity.
Underwriting profitability is of paramount importance when discussing the availability of
insurance, but there are other issues that insurers take into account when evaluating a class
and considering how to allocate their underwriting capacity.
2.2. Important Market Issues
The following are some important issues as far as aquaculture is concerned:
2.2.1. Size and Sophistication of the Industry
Availability of insurance can be affected by the size of an industry and the state of its
development. In this respect, aquaculture is small and new in comparison to other major
food production industries. Also, only part of the industry is insurable.
A substantial proportion of worldwide aquacultural production comes from “mom and
pop,” peasant-type production units that mainly produce food for the family or for local
markets. These units tend to be run on an unsophisticated basis, and lack the stock
control and production records that are a prerequisite to obtaining insurance cover.
“Proof of loss” (i.e., demonstrating the numbers, sizes and value of fish lost in any claim
situation) is one of the most difficult issues in aquaculture insurance, and it makes the
keeping of comprehensive stock control records mandatory. Thus aquaculture insurance
is only generally available to operations that are managed to a high standard, and
maintain all the accounting and record keeping activities of a sophisticated business.
In the case of the worldwide shrimp industry, which is very large, even in comparison to
the salmon industry, and many parts of which are well managed, its stock control
methods are not judged by insurers to be sufficiently accurate to merit insurance cover.
All too often, ponds that are stocked in a standard way simply do not produce the outturn
expected, often for no apparent reason. Comparatively sophisticated though the industry
is, it is virtually entirely uninsured.
However, there are sectors within aquaculture, such as salmon farming, sea bass and sea
bream, parts of the trout industry, industries like pearl farming, and tuna on-growing,
that are large and sophisticated, and that do operate the stock control systems need.
These sectors are likely to be joined in the future by many others, cod farming being one
example, because an encouraging factor about aquaculture is that it is a growing industry
and its growth is likely to accelerate!
3
With the dramatic fall in the hunted fish catch around the world, aquaculture is viewed
as having a bright future, and that is probably why, in spite of its relatively poor claims
performance to date and its lack of sophistication in many sectors, a small number of
insurers and reinsurers have been prepared to invest in its future, and they continue to
support the class and make coverage available in spite of its losses.
2.2.2. A Technically Difficult Industry to Insure
Water is a fickle environment to deal with, even in its most quiescent state. It can range
from being completely absent when it is needed to being highly destructive when
present. It is, all at the same time, a supporter of fish life, a carrier of disease and
pollution, highly temperature sensitive, and prone to fluctuations in its chemical
constituents.
To fish, shellfish, and other creatures and plants, water is a constantly changing life
support system, the fickleness of which they have evolved a number of strategies to deal
with. One strategy is to move away from threatening or extreme conditions and dangers.
In no case is this more relevant than when plankton blooms2 threaten them. But such a
strategy runs completely counter to the prime modus operandi of aquaculture, which is
to keep stock marshalled together in controlled production units where husbandry
practices can be comprehensively applied. Many of the perils aquaculture stock faces,
therefore, are a product of aquaculture itself, of growing candidate species in dense
populations that in their wild status they would not normally experience.
Aquaculture husbandry techniques must therefore compensate for the loss of the natural
risk management strategies of wild species and go much further by dramatically
reducing a whole range of risks and hazards faced by keeping stock crowded in static
growing units. After over 30 years of its modern development, aquaculture is still
evolving new ways of doing things, discovering new problems, introducing new species,
and opening up in new areas. Insurers have to research and quantify the risks in each
new area, and create rates, terms, and underwriting conditions for them.
Most of the biological problems with domesticated farm animals such as cattle, sheep,
chickens and pigs are very well known. However, even as far as the better known
farmed aquatic species such as salmon, trout, and catfish are concerned, new diseases
and biological problems are still distinct and unquantifiable future possibilities that have
to be factored in by underwriters. Equally, the disease risks for each new aquaculture
species that is brought into husbandry are also unknown. Each represents a new learning
curve for the industry and its insurers.
The key perils faced by aquacultural production operations include disease, infestations
of parasites, cannibalism, predation, temperature fluctuations, plankton blooms, as well
as droughts, storms, earthquakes, equipment and system failures, vandalism, and manmade pollution3. Aquaculture’s insurers have to navigate their way through all these
2
Plankton blooms are phenomena that occur all over the world. The most damaging are in seawater, but they can cause
problems in freshwater too. Known since biblical times, they occur when, under ideal conditions, one or more
microscopic plants or animals proliferate rapidly in a water column, reaching enormous numbers and density. Alive or
when dying off, they can reduce oxygen levels, produce toxins, or clog the gills of fish, often causing death.
3
“Pollution” is a greatly misunderstood term. To most people, it means the release into the environment of chemicals in the air, on land, in water, or at sea. However, what it really means is the release into the environment of agents that
are harmful! That is an entirely different thing, because what is released may be harmless to one creature but lethal to
another. Therefore, whilst a spillage of fresh water may not “pollute” in the understood sense, it can cause problems by
diluting seawater, for example! Because of the uncertain definition of the term, definitions of pollution are used by the
aquaculture insurance industry, to determine what is and is not covered by the peril. Interestingly, the need to define
4
difficulties and unknowns, dealing with them and constructing policy wordings, plus
rates and deductibles to cater for them. Their task has proved to be, and will likely
continue to be, extremely difficult to do, but availability of cover is dependent on them
continuing to do it!
2.2.3. Adequacy of Support Services and Industry Skill Levels and Equipment
Of crucial importance to the developing aquaculture industry is the availability of
support services such as disease diagnosis laboratories, fish veterinarians, fish
processing facilities, plus the ability to obtain and use drugs. As far as underwriters are
concerned, if they are to make insurance cover available, they need to know that the
operations they are insuring have access to good disease diagnosis facilities and that
drugs are readily and legally available. If disease strikes, they need to be sure that it can
be diagnosed and treated very quickly, and that if worse comes to worst, the amount of a
potential loss under any policy can be reduced by salvaging and marketing healthy
stock.
Importantly, great advances have taken place in the design of cage moorings, and
considerably improved cage designs are also available to the industry. This has led to the
opening up of offshore aquaculture in certain areas, and indeed in certain countries. In
addition to knowing that appropriate drugs are available, insurers need to know that the
basic equipment the industry uses is up to the job it is required to do.
Fish husbandry skills are a particularly important issue. For the industry to flourish, each
farm’s--indeed the whole industry’s--workforce, from the most senior personnel
downwards, need to be skilled enough to be able to deal with all the many and extremely
varied problems that confront it. Each area in which the industry operates needs an
education and training infrastructure that can provide a continual flow of trained
personnel to man the industry. The standard of management and employee skills is one
of the most important underwriting considerations of each individual production
operation. If they are not of a satisfactory level, insurance will either not be available or
only available on very restricted terms and conditions.
The quality of support services and the skill levels of the workers in the industry,
therefore, can differ radically from sector to sector, but their adequacy or otherwise, at
farm and/or area level, can directly affect the availability of insurance.
2.2.4. Underwriting and Broking Skills
It is not only in the aquaculture industry that skill levels are a very important factor
affecting the availability of cover. In preparing this report, we held listening sessions in
various countries with a number of the aquaculture insurance industry’s leading brokers
and underwriters; several of them expressed concern at the skill shortages they face in
their own industry.
Underwriting the risks of aquaculture is a very difficult job that demands a high level of
insurance underwriting ability, alongside an extensive knowledge of the aquaculture
industry and its risks. Aquaculture risks are very complicated and technically difficult to
grasp. There are only a small number of underwriters who can handle them, and there
are no training facilities to teach skills to new underwriters.
“Pollution” first became clear in the early years of aquaculture insurance, when a farmer who had pollution but not
disease cover under his policy, claimed that his fish were polluted by disease!
5
Underwriting skills are not the only skills required. As is explained elsewhere in this
report, a supporting infrastructure of brokers and agents, risk management surveyors,
and loss adjusters is essential. Underwriters rely extensively on the work of brokers and
agents in the field to bring business to them, having first developed the comprehensive
underwriting information needed. Risk management surveyors are needed to survey
farms and they make a real contribution to improving their risk profiles. Finally, the
whole insurance process depends on the availability of the professional loss adjusters
who deal with the emergencies, and help to mitigate losses and keep them as low as
possible. The skills of all these people are not learnt overnight; they take a long time to
develop!
At the time of preparation of this report, the aquaculture insurance market would appear
to be possibly under-resourced, with skills thinly spread in the key areas mentioned. At
best, the situation appears “uncomfortable,” and there is not a great deal of room to
handle any significant increase in the volume of business the market has to deal with.
Expanding the “spread of risk” is one of the things that needs to happen in the
aquaculture market. The existing business in the market is very narrowly focused on
salmon and tuna, sea bass and sea bream. However, any significant increase in business
will have to be supported by an infrastructure of skilled people with the right knowledge,
in the right places, who can provide the broking, surveying and adjustment resources
needed. The insurance market does not currently appear to be prepared to take on new
business, or to go out and find and train the people needed to handle it. It seems to be in
the doldrums in this respect, and the future availability of insurance to new sectors
developing within the industry is therefore uncertain.
2.2.5. Legal Factors
Laws present further difficulties for underwriters! Aquaculture, being a new and
unconventional industry, tends to fit awkwardly into national legal frameworks. More
often than not, the laws that are applied to it were originally designed to cater to
agriculture or fisheries. Such laws are often not appropriate and do not serve aquaculture
well.
In some instances the effect of the law can be very negative. For example, laws in some
countries do not actually uphold rights of ownership of fish in fish farms. In the USA, a
court in Maine recently4 ruled that salmon farmers in Maine may only rear indigenous
strains of salmon. It bans the use of genetic strains of salmon developed outside the
State. In effect, this takes the Maine industry right back to square one, as far as genetic
development is concerned, and imposes higher biological risk levels on it as it tries to
develop in the future.
The way laws operate, especially those governing disease situations, is very important to
underwriters. Their structure and intent are inextricably linked to insurance and therefore
they can directly impact on underwriters’ claims experience, and therefore on their
profits. Insurance should be a protection of last resort; however, many national laws
either do not deal clearly with the issues, or are inequitably applied, and thereby elevate
insurance to a protection of first resort!
In the case of disease for example, a limited number of governments will adequately
reimburse farmers if they order them to slaughter their stock; others will compensate
farmers inadequately, in effect encouraging them to hide disease outbreaks; even more
4
In 2003.
6
will not provide any compensation at all. In many countries, there is no legislation at all
and serious diseases can spread uncontrolled.
The circumstances surrounding compulsory slaughter should be straightforward! If a
government decides that it is in the public interest that livestock be slaughtered, then
logically the public, i.e., the taxpayer, should pay the bill. Governments, however, are
almost always reluctant to use tax revenue for such purposes, so what tends to happen is
that they pass laws that only do half the job that is needed.
Restrictions of movement and compulsory slaughter orders offer very effective ways of
mitigating the effects of outbreaks of economically important diseases, but their
imposition can severely impact producers financially. Insurance should be able to
protect them, but is rarely able to do so. This is because the laws under which such
orders are enacted tend to be far removed from the neutral, fortuitous environment
underwriters need to operate in.
Underwriters always have to guard against providing cover that results in them
becoming a tool that authorities can use. In other words, if the authorities in a country
have power under its laws, as many do, to elevate diseases to legally established
categories of importance in which compulsory slaughter or restrictions on movement can
be invoked, they may be tempted to elevate a disease because they know that farms are
insured against the contingency of such orders being issued. In these circumstances
underwriters in effect become public benefactors, which is most definitely not their role.
Aquaculture also suffers from shortcomings in the disease testing procedures that often
determine whether and how laws apply.
Disease testing techniques in aquaculture tend to produce much less clear-cut results
than those of agriculture. Whilst it is possible to test every cow in a herd, or every sheep
in a flock, and get very accurate results, it is not possible to test every fish in a batch or
on a farm, not least because testing can often cause the death of the fish. When testing
for particular diseases in aquaculture, all that can be said is that a statistically significant
random sample of fish were tested, and the diseases tested for were not found in the
tissue samples tested5. That does not guarantee that the disease is not present in the
stock! Aquaculture is not therefore able to benefit from the levels of reliability that apply
to the certification programmes used in agriculture. This does not make underwriters’
task any easier when deciding on the terms and conditions to apply to disease.
All these unsatisfactory issues mean that in many situations the industry is not operating
in circumstances that are conducive to insuring disease risks. As a result, disease
mortality cover is often unavailable to farmers, or is only available at high rates and/or
high self-insurance factors. In the case of the less clear-cut contingencies that arise out
of the discovery of disease on a site, which should be insurable in a healthy and
competitive market, cover is unavailable.
2.2.6. Aggregation of Risks
A further factor that affects the availability of insurance is “aggregation of risk.” One of
the major difficulties of underwriting aquaculture is the uncertainty as to what are the
financial limits of an underwriter’s exposure. This does not mean the financial exposure
5
Statisticians and underwriters tend to disagree about the merits of testing “statistically significant samples!”
Statisticians are inclined to believe that if tests of statistically significant samples prove negative, the farm is clear of the
disease tested for. Underwriters are generally not comfortable with this assumption!
7
at a single production site, which will always be a fairly clear and finite monetary
amount. The uncertainty lies with numbers of sites located within or across a
geographical area, or along an extended coastline.
In order to establish what risks he or she can underwrite an underwriter has to know
what is the worst loss scenario that could possibly occur. All underwriters have to
accurately estimate their monetary exposures to every type of event by calculating the
“Possible Maximum Loss” (PML) and “Maximum Possible Loss” (MPL) that may
affect their total book of business, i.e., the monetary total of all the individual sums
insured that may be affected by a single peril. They will also structure the reinsurance
arrangements they make according to these PML and MPL figures.
In aquaculture, however, it is extremely difficult to estimate these figures. This is
especially so in the marine environment, where the geographical extent of such unique
perils as plankton bloom are largely unknown. But large areas of production may be
exposed to other single events such as storms, extreme temperatures, droughts, or
diseases, all of which can impact on widely dispersed production sites.
This uncertainty affects the availability of insurance because underwriters have to be
cautious, and though they may want to take on more business of a certain kind, their
caution will prevail as they cannot afford to underwrite risks that expose the capital base
of their companies. Their reinsurers will be just as concerned about PMLs and MPLs, if
not more so, because they are getting business comprising multiple risks from multiple
different sources.
A typical example of an aggregation of risk, which was very relevant at the time this
report was being prepared, involved the aggregations of value in the newly developing
tuna holding and on-growing business. Several concentrations of value dominate this
branch of aquaculture, which are located in Turkey, Spain, Malta, Mexico, and in
Australia, especially in Port Lincoln in South Australia.
Tuna has an extremely high value on the Japanese market, and so high have values
become in some of these areas (values on the order of $10 to $15 million per “farm cage
group6” are common), that the conventional aquaculture insurance market did not have
the underwriting capacity to cover the total value of all the stock involved. Because
aquaculture has a reputation for being high risk, it proved extremely difficult to persuade
general markets to get involved in providing additional underwriting capacity. The only
way to do so proved to be by offering extremely high rates! The rates for “all risks”
cover on stocks of tuna in some of these holding areas reached eight percent before
sufficient additional underwriting capacity from the general insurance market not
normally involved in aquaculture, was attracted to absorb the total values involved. That
rate compares with rates of between 3.75 percent and 4.0 percent, to provide similar
cover on a well-run salmon farm.
Aggregation of risk therefore not only affects the actual availability of cover, but the
cost at which it is available.
2.2.7. Underwriting Expenses
For many of the reasons already discussed, underwriters of aquaculture risks have to be
very proactive in risk management. If they are not, they have little chance of making a
6
I.e., there may be other, similarly sized cage groups under different ownership in relatively close proximity (several
miles) to the site.
8
profit. Not only do they therefore have to pay constant attention to the quality of the
risks being offered to them, they also have to be sure that the husbandry standards in the
production units they are covering are constantly maintained. Additionally, new risks
they are offered have to be assessed and rated, but only after full information on them
has been gathered. The new farms have to be surveyed and old ones often re-surveyed,
new husbandry techniques and new species have to be assessed and associated risks or
reductions in risk, evaluated. The services of a skilled surveyor, and the loss adjusters
needed to handle claims, do not come cheaply, added to which, underwriters often need
to retain the services of specialist technical advisers on diseases and husbandry
standards.
The costs of handling claims and reports of claims is another area of expense. To
appreciate this, the way aquaculture insurance policies work needs to be understood.
Aquaculture policies contain clauses instructing insureds on the response to and
reporting of claims. These clauses very specifically require the farmer to report any
event that “could” cause a loss under the policy. In other words, the producer must not
wait to see if an event actually results in a loss, he or she must be proactive, and advise
insurers in the event that something happens that might turn into something more
serious. The clauses instruct insureds on what to do, and give full contact details of the
underwriters’ representatives who have to be contacted.
Behind this very tight control is the fact that the very nature of aquaculture is such that
when things go wrong, they can go wrong very quickly and very badly. Conversely, the
best time to take action is very early on, before a situation gets too bad. Further,
aquaculture insurance policies also contain high deductibles (up to 10 percent, even 20
percent, or 30 percent of a whole site, or even larger!), and within such high deductibles,
a relatively insignificant situation can develop and degenerate very quickly into
something much worse. Without very tight claim reporting requirements, insurers would
never know about a problem until it was too late; they would then be unable to do
anything to defend their position. Another reason is that with their experience and
knowledge of the problems in aquaculture, and with the range of expertise they can call
on, insurers are often in a better position to mitigate losses than insureds are.
It is also the case that when a problem arises, the best and most effective action may be
one that is in direct contravention of the conditions of a policy; a good example of this
would be the slaughtering of a batch of diseased fish in order to stop the disease from
spreading. The only source of permission to take such action would be the underwriter
or an underwriter’s representative, such as a loss adjuster.
This approach to claim handling is very risk management-oriented and very effective,
but it is also extremely expensive. Fish farms tend to experience numerous problems,
and each claim response activity can involve the use of an expensive specialist, as well
as the attendance of a loss adjuster. The fees and expenses of both have to be paid by
underwriters out of the premiums they gather, which also have to cover the actual cost of
any lost stock if a claim results.
The direct involvement of insurers in claim handling is very effective at reducing losses,
so it is not an approach that is going to be abandoned by aquaculture insurers. As far as
producers are concerned, they get the benefits of an excellent service, but they ultimately
have to pay for its costs through their premiums.
9
2.2.8. Acceptability of Premium Levels and Terms and Conditions
The “availability” of any product or service is influenced by its price. If a service is too
cheap, the providers cannot profit by making it available; on the other hand, if it is too
expensive, end users will not buy it. Aquaculture insurance appears to be in precisely
such a quandary, for whilst there appears to be considerable resistance to buying
insurance amongst many fish farmers, at least some of whom consider premiums to be
too expensive7, insurance underwriters do not appear to be making the necessary profits
to satisfy their shareholders and to stay in the business.
The situation does not seem to add up. If losses throughout aquaculture are bad, as
underwriting losses appear to demonstrate, insurance should be worth paying for, but
apparently it is not. A number of possibilities may explain the situation, but it would not
be appropriate to comment in this report, as the situation requires considerable further
study8. Suffice it to say that even though an active market for aquaculture insurance is in
existence, producers may not wish to take advantage of its availability, because the
premium structures do not fit their financial situations or their views of the risks of their
operations.
2.2.9. Risk Spreading Techniques
Insurance protection of all types is structured in different ways. General risk spreading
techniques in the market are very diverse and depend greatly on the size and extent of
the business requiring cover. The major aquaculture producers, given the size, diversity
and geographical distribution of their production sites, tend to seek differently structured
insurance protection to that sought by a smaller producer.
The small producer’s livelihood is dependent on a single site that is 100 percent subject
to any peril, but the large producer, with many sites spread over a large area, may not
need cover structured on a “per site” basis. Large producers can buy catastrophe cover
with self-insured levels that do not involve underwriters in single site disasters, which
are common in the industry. In one case that is an example of this approach, a major
corporation that owns a large number of sites with a total aggregate value of many
millions of dollars, buys catastrophe cover with a deductible9 of around $6 million,
which in effect absorbs the loss of several entire sites. The advantage of such an
arrangement is that they are protecting their assets, but are not buying cover against the
small, partial site losses, which arguably are down to their own management practices to
handle. Their costs of insurance will be lower, but of course they have to absorb the
losses that occur before the deductible is breached.
In theory, smaller producers can buy cover on a similar basis by buying policies with
high franchises10. Such arrangements may suit some, but not others. The point has to be
emphasised that in adopting, say, an 80 percent franchise, a loss of, say, 65 percent,
7
A specialist broker recently made considerable efforts to structure an insurance scheme for a group of farmers in a
European country. The effort was in vain. When all negotiations were concluded, the premium rate the farmers were
prepared to pay, and the terms and conditions they wanted (particularly very low deductibles), were impossible to sell to
underwriters. Thus a significant volume of production, with a substantial value, remains uninsured.
8
A factor that was relevant at the time this report was being written was that salmon farmers were being heavily
squeezed by low market prices. This prevented many buying cover, even thought they would like to have done so.
9
A “Deductible” is an amount that is deducted from the amount of a claim. Thus, if a deductible of 20% or the total
value at risk applied, a claim of 15% would not be paid, but out of a claim of 30%, 20% would be deducted, leaving
10% to be paid.
10
A “franchise” is an amount that must be exceeded before a claim is paid. If the franchise is exceeded, the claim is
paid in full. Thus, if a franchise was, say, 75% of the amount at risk, a loss of 70% would not be paid, but a loss of 80%
would be paid in full.
10
which is very significant and debilitating to many producers, would not be recoverable.
Situations have also occurred with this type of cover where a loss has been extremely
close to the franchise level, but not equalled or exceeded it. A producer who experiences
a 79 percent loss, but cannot get it paid because the franchise is 80 percent, will not be
very happy!
Another insurance buying technique is to buy cover on a “layered” basis, using “excess
loss” techniques. For example, if a site has a maximum value of $25 million, a policy
might be arranged for a “primary” $15 million, and an “excess” $10 million, together
making up the total $25 million. This can be attractive to the underwriters who
underwrite each “layer” (usually different underwriters participate on each one) for
different reasons, and the total premium cost may be lower as a result. Those insurers on
the first $15 million know that their maximum risk is only a proportion of the total site
value, yet they tend to get a high premium. The underwriters on the excess $10 million
know that they will only have to pay a claim if a real disaster occurs, and they are happy
to take less premium. Underwriting the excess layer can help solve underwriting
capacity problems because those insurers that are not keen to be involved in aquaculture
– because of its high numbers of losses –may feel that being free of the losses that occur
below $15 million gives them a better chance of making an underwriting profit from the
industry. Arranging excess loss protection in this way is a complicated business, and
there are very many different ways of structuring the layers to provide cover. It is a
technique that is generally only useful to large producers.
Large producers can also use another technique, the “captive company,” to spread their
risks. Several large aquaculture producers use “captive,” or in-house insurance
companies. These producers are generally separate operating divisions of large, multinational conglomerates, who own their own in-house insurance companies. An in-house
“captive company” can cover all the group’s insurance interests, including the difficult
ones like aquaculture, and obtains benefit from earning the underwriting profits that
accrue (of course, it also has to absorb the losses), as well as avoiding standard insurance
factors such as brokers’ commissions.
Such in-house insurance companies can constitute a way of increasing the economic
efficiency of a large corporation’s total premium spent. However, their success depends
on how they are used, and on their overall underwriting results11. In the event that a
captive company fails, the business it underwrites may find its way back onto the open
market and have to face open market terms and conditions.
There are many techniques that enable aquaculture stock insurance to be arranged to suit
the needs of large or small producers. The best way for a producer to find what is
available and what suits its operation is to use the expertise of a specialist broker.
2.2.10. Underwriting Profitability
Underwriting profitability has already been referred to several times in this report.
However, it needs to be emphasised that insurance underwriting is a capitalist activity,
with profit its objective! Every insurance company and underwriter is restricted in the
amount that can be written by the strength of its capital base. If sufficient underwriting
11
If a captive company is used to underwrite high-risk business at below economic rates, the company will run into
losses and the advantage of the technique will be lost. Captive companies have to be managed just like any conventional
underwriting organisation – for underwriting profit! They therefore have to be staffed by skilled insurance people and
charge realistic rates.
11
profits are not forthcoming from a class, other sources of more profitable premium
income will be sought.
Over many years aquaculture has suffered significant losses, and as a result the industry
is perceived to be very high risk. Since the market began in the early ‘70s, neither
primary underwriters, nor reinsurers, have achieved significant underwriting profits.
Indeed, over the life of the market it is entirely possible that neither have made any
underwriting profits at all!
At the time this report was produced12, the issue of “underwriting profitability” hung
over the aquaculture market, making the continued availability of aquaculture crop
insurance very uncertain indeed!
2.2.11. Market Capacity and Its Future
When this report was produced the capacity of the current market for aquaculture could
best be described as ”adequate but fragile.” Its on-going capacity depends on the
market’s contract renewal season that occurs at the end of the year.
Key primary insurers and specialist insurance brokers use specially prearranged
reinsurance and other types of contracts under which the majority of all the business
they conduct is handled. Most of these contracts, and the special insurance arrangements
that the major aquaculture producers take out, run over a calendar year, which generally
starts on 1 January, and ends on 31 December. There is therefore a period in the months
leading up to the year’s end in which the renewal of these contracts are negotiated.
The “renewal season,” as it is known, is a time of major “sorting out” in the aquaculture
market. The profitability, or otherwise, of the various contracts is examined in great
detail, and decisions are reached by the major and secondary reinsurance companies as
to their approach to the business in the coming year.
Aquaculture insurance comes within the remit of the agriculture departments of most
insurance companies. Whilst the major companies will examine the underwriting results
of aquaculture on its own, these are inevitably affected by the underwriting results of the
agriculture departments as a whole.
As has been pointed out, the historical results of aquaculture are not good, and it is likely
that the results for the year in which this report is produced will not be very good either.
Earlier in 2003, a very severe loss from superchill13 occurred in Maine, USA, and New
Brunswick, Canada. In all, stocks of salmon valued approximately $23 million were lost.
Two key Lloyd’s of London underwriters immediately imposed a moratorium on new
business in order to evaluate their losses; they avoided taking on new business until they
could ascertain how their reinsurance arrangements had been impacted by the disaster.
Happily the situation was restored after both underwriters had conducted internal
evaluations as to whether their organisations wished to continue in the class. This serves
to illustrate, better than anything else, how fragile the aquaculture insurance market is,
and regardless of the decisions of the underwriters to continue for the remainder of 2003,
the annual evaluation of aquaculture still has to be gone through at the end of the year.
12
Towards the end of 2003.
Superchill is a condition that occurs when the temperature of seawater drops below 0ºC. Up to approximately -1.5ºC
the seawater does not freeze because of the presence of salt. Fish, however, have fluids in their bodies (e.g., in their
eyes) which are not saline and therefore freeze, causing severe damage and ultimately death.
13
12
A further factor is compounding the next renewal season. The non-aquaculture
components of the agriculture sector face severe losses in 2003. A long spell of very hot,
dry weather across the whole of central and southern Europe has caused widespread crop
damage. There have been severe forest fires as well as lost crops. What the outcome will
be in the form of claims on agriculture underwriters is unknown, but the prognosis is not
good! It is possible that even if some sectors of aquaculture produce respectable
underwriting profits, the overall results of the departments it comes under may be bad,
and some insurers may pull out of both aquaculture and agriculture.
The outcome of the next renewal season is very uncertain. At best the market will
continue with approximately the same capacity. At worst, its capacity may be severely
reduced. It is unlikely that the market will cease altogether, but terms and conditions are
very likely to harden significantly, and some of the largest producers may not be able to
obtain all the cover that is needed to protect their largest sites. Small producers may find
that much higher husbandry and operating standards are demanded by the market, and
many may be ruled out and find cover is not available.
13
3. Insurance Availability At Farm Level
3.1. Introduction
The issues discussed in Section 2 are general issues that affect the overall size and
profitability, and therefore the availability of the general market for aquaculture insurance.
However, even if the overall market is profitable for underwriters, coverage may not be
available in certain formats, and it may not be available at all to individual farms. It is
important therefore to analyse the factors and processes affecting availability of cover at
individual farm level. At this level, availability is determined by risk factors that directly
relate to the circumstances, situation, management, design, and husbandry standards of each
individual farm.
Over thirty years, underwriters have developed a range of techniques for identifying and
analysing the risks at farm level, and for quantifying their importance. Fundamental to this
process is the requirement for proposal forms to be completed on each risk, and in all but the
rarest of instances a risk management inspection will have to be carried out.
Underwriters have also developed policy terms and conditions for dealing with the exposures
their risk analysis processes reveal in each farm. These include applying deductibles and
franchises (often of different levels for different perils), excluding perils, adjusting rates to
reflect the different threats and hazards each farm faces, and finally declining to cover any
farm that does not match up to their minimum standards.
The aquaculture market is made up of different insurers who operate separately or join
together in groups. Smaller farms tend to be covered by one insurer acting independently, but
producers with very large values are usually insured by groups of underwriters who join
together to provide the cover by each taking a percentage portion of the total amount of the
producer’s risk. Individual insurers tend to use their own policy wordings for small producers,
accepting a common wording when joining a group of insurers to cover a high value producer.
The result of this market demand for diversity is that there are a variety of different policy
wordings available from different insurers, each one of which tends to vary slightly, but all
tend to do the same things albeit in slightly different ways.
Factors behind these differences include the national insurance legislation that each insurer
has to conform to in their local market, the different aquaculture underwriting experiences of
each one, and in many cases to the peculiarities of the non-aquaculture classes of cover they
are involved in14 at the corporate level.
It is not practical to compare, precisely, all the different policy wordings in the market; thus
part of this section deals with issues that are common to virtually all policies that producers
need to be aware of and understand. A further part of the section deals with the processes and
procedures that have to be undergone when applying for insurance. Success in obtaining
satisfactory insurance cover depends on the ability of producers to provide the right
information in proposal forms, and to satisfactorily undergo risk management inspections.
14
This is a complicated issue that is more appropriately discussed in a technical insurance manual as opposed to a
report on the availability of cover. However, producers who buy cover may find when they get their policy that the
terms of their aquaculture policy are attached to a basic policy wording that the insurance company uses for all their
business. Whether the terms expressed on the policy jacket blend acceptably with the aquaculture wording is something
that needs to be examined very carefully; this, again, is an area that a competent insurance broker or agent should
handle for the producer.
14
Though the key points about wordings and insurance processes are covered, the producer who
sets out to buy insurance is strongly advised to go over the terms and conditions of any policy
offered with a qualified insurance broker or agent. It is not, as is referred to in Section 2, just
the industry of aquaculture that is affected by the law of each country; insurance is one of the
most highly regulated industries in the world, and there are many legal pitfalls to be wary of.
Professional brokers and agents earn commissions when they arrange insurance for an
organisation, and it is their professional duty to give advice to their clients on all matters
bearing on the type of insurance involved.
3.2. Processes Involved in Arranging Cover
3.2.1. Using a Specialist Broker or Agent
Aquaculture insurance is one of the most specialist classes of insurance; its processes
and procedures are complicated and legally onerous; it is essential that farmers get help
to navigate their way through the complexities of buying cover. All producers are
strongly advised to find one of the market’s specialist, independent, insurance brokers or
agents to help them through the application process and to argue their case with the
underwriters who will ultimately provide them with cover.
Depending on the nature of the insurance market in their country of operation, and on
the situation of the aquaculture industry there, producers may or may not be able to find
local specialist insurance brokers and/or insurers who can provide the cover needed. If it
proves impossible to find experienced intermediaries or companies locally, the next best
thing is to find a local insurance broker with contacts in the London insurance market.
They will be able to tap into the specialist organisations in London who will be able to
steer them and their clients through the steps involved in buying insurance.
3.2.2. Completing an Application Form
All the specialist insurance markets use their own insurance application or “proposal15”
forms (See appendices I to IV). These have to be carefully and comprehensively
completed by the producer16. This is not a simple procedure; it is akin to completing an
examination paper on the risks to their farms and to the species they are farming.
Many questions in the application form require the provision of additional information
and materials such as maps and photographs. However, insurers may require extensive
additional information, depending on whether or not they are familiar with the
geographical area of the farm and the species being grown. Supplementary information
may be required on the layout of the farm, the design of holding units, the nature of the
water supply, the skills and experience of the management, the weather extremes of the
area, the prevailing disease legislation, the value of the crop at its various stages of
growth, and many other factors.
There is one very important thing to remember about completing a proposal form–the
answers to all the questions must be accurate! If they are not, the penalty may be that
any insurance policy arranged on the basis of them may be null and void. Equally
important, most proposal forms contain a general question asking proposers to disclose
15
The words “application” and “proposal,” when used with “form,” are interchangeable. An application form is exactly
the same as a proposal form.
16
The producer should complete the proposal form him or herself, and not rely on anyone else, such as the broker, to do
it. The proposal form becomes a legal document that the producer must sign, which may be incorporated into the
insurance policy and be deemed to be a part of it. If it contains any inaccuracies, or misleading information, the policy
may fail to perform in a claim situation.
15
any other “material information17” on their operations. Such things as events that
threatened the farm but did not actually cause a loss, or facts such as the firm that built
the pumps the farm uses has gone bankrupt and no spares are available would be
“material,” and should be disclosed in answer to that question.
“Material information” is a difficult area to deal with, and is one that a skilled broker
will be able to advise a producer on. However, a golden rule is when in doubt, disclose
any uncertainty by making a clear and specific reference to it!
3.2.3. Obtaining an “Indication” of Rates, Terms and Conditions
The normal procedure is for a producer to submit a proposal form to a broker or agent,
who will in turn submit it to specialist underwriters. It is usual for them to prepare an
“indication18” of rates, terms and conditions.
As already mentioned, underwriters will often require more information about an
operation than is disclosed in the proposal form, but there is obviously no point in going
further if the terms the underwriter is thinking of applying are unacceptable to the
farmer. So giving an indication of the terms that are likely to apply is a sensible way
forward. If the terms and conditions indicated are acceptable, they are likely to be made
subject to a condition that the farm be surveyed, and/or extra information provided,
before the underwriter will convert the “indication” into a full quotation or agree to bind
cover on the farm. In some instances, if an underwriter is comfortable with an
application, he will bind cover but subject to a satisfactory survey being carried out
within a stipulate period of, for example, 30 days.
Payment of the cost of the survey is often dealt with in the indication of terms and
conditions. Either the farmer is expected to pay for it, or the underwriter will pay for it
out of the premium. Which of the two alternatives is offered depends on whether the
underwriter likes the farm and is encouraged to be aggressive in winning its business, or
whether the farmer needs cover badly enough (maybe to satisfy a bank) to accept the
cost of the survey. Who pays for it is therefore a matter of bargaining!
3.2.4. Insurance Surveys
The insurance industry has a long tradition of developing risk management systems for
the industries whose risks it handles. Its risk management influence, historically, has
been widespread and extremely effective! There are two simple examples of this; firstly,
soon after their invention, the use of sprinkler systems was enforced by insurers, who
quickly saw the benefits they could bring in the fire insurance sector; secondly, aviation
insurers insisted on limiting pilot flying hours after experiencing aircraft losses caused
by pilots falling asleep. There are thousands of other similar examples. Insurers have
always realised that it is vital to apply the lessons that can be learned from their claims
experience, and to use the latest technology and scientific advances in an industry to
prevent and mitigate losses. The traditional way that insurers put this approach into
practice is through their terms and conditions and the risk management surveys they
require to be carried out. Aquaculture producers should expect insurers to insist on such
things as regular, formalised, maintenance contracts on equipment, particularly pumps
17
Put simply, “material information” is any information that may affect an underwriter’s decision as to whether he
accepts or declines to cover a site, or affects the terms and conditions that he offers on it.
18
An “indication” is an outline of rates, terms, and conditions that is not binding on either party. It merely represents
the first step in a negotiating process, in which an insurer is in effect saying, “These are my terms and conditions. Are
you interested?”
16
and aeration, regular sampling of stock, and the implementation of bio-security
measures.
Producers tend to have mixed views of risk management surveys! They either like them
or hate them and often feel that their imposition is a case of insurers telling them how to
run their businesses! This is especially the case when, as often happens, survey
recommendations cost money to implement. There are, however, strong arguments for
welcoming them!
Common sense dictates that it is very much in a producer’s interest to manage or
eliminate risk in the production operation. But it also has to be remembered that any
farm buying insurance will inevitably retain part of the risk through the self-insurance
deductibles and franchises. Every time a loss occurs, the farmer will bear part of it, so
eliminating losses has a payoff in that respect, too.
It is a thoroughly worthwhile exercise for a surveyor to go over a farm from end to end,
specifically searching for weaknesses in the system, especially if the surveyor has
experience with the problems and losses in other, similar, aquaculture systems. Even
more is this the case if the surveyor can bring knowledge and expertise to bear on
aspects of the operation that are technically specialised, such as electrical and
mechanical installations and marine mooring systems for example, and which are
outside the producer’s own areas of expertise. Experience shows that surveys are
extremely effective; it is an absolute fact that numerous losses have been avoided in
aquaculture all over the world, through the systematic risk management inspection of
sites.
The outcome of a survey will be a report that contains recommendations covering things
that should be done to make the farm and its stock safer. Implementing the
recommendations will almost certainly become a condition of the insurance
arrangement. The producer does not have to accept the recommendations, and can argue
why they do not need doing, or why they would be, perhaps, detrimental to the health of
the stock or too expensive to implement. In light of such representations, underwriters
will sometimes forgo the implementation of a recommendation, but not very often!
If a producer strongly disagrees with a recommendation, he or she can refuse to
complete it. The underwriter may then either refuse to provide any cover at all, or insert
a specific condition into the policy relating to the recommendation involved. This may
exclude cover for any losses connected to it or may apply a special deductible to them. It
is then up to the farmer to decide whether such terms are acceptable or not.
Every producer buying insurance for the first time or from a new insurer should expect
to undergo a survey. They should also expect one to be required at the renewal of their
policy and when significant extensions or alterations to growing facilities take place. A
number of specialist insurers even get their surveyors to visit sites mid-term to ensure
that standards are being maintained.
In general, surveys fall into three types:
3.2.4.1
Physical Surveys
A large, worldwide inspection force is used by the insurance industry to carry out
inspections of commercial and industrial operations of every kind, from electrical and
mechanical, health and safety, fire, to marine and aviation. These surveyors are unlikely
to have experience with the biological risks and hazards of aquaculture, but many of
17
their skills are of direct relevance to the physical arrangement of common aquaculture
system components, especially life support systems using extensive pumping and
aeration technology, and marine operations using moored cages and offshore holding
units.
Locating, mooring, and maintaining marine cage systems is fraught with major
difficulties, and in the history of this sector of aquaculture there have been some truly
massive losses! The marine insurance surveyors used by insurers have extremely wide
experience with the local marine conditions in their area of operations. Above all, they
have invaluable experience with the extremes of wind and wave, and with the currents
and tides that occur along their coastlines. They have consistently proved to be an
invaluable source of vital risk management knowledge for offshore farming.
The mooring of cage systems is a long and complicated subject, but it is a fact of
mariculture that sites that are biologically suitable to marine farming are often very
unsuitable for the fixed mooring of groups of cages. The locating of cages is primarily
designed to meet the health needs of the fish in them, and not to accommodate the
physical frailties of the cages themselves or to allow for the extremes of wind and wave
activity that they will have to withstand.
Inevitably cage culture has to be a compromise between the two competing sets of
needs. The farmer naturally knows what is best for the stock, but few farmers are
familiar with the stresses and strains that the marine environment imposes on mooring
systems and cage structures. The input of a skilled marine surveyor is vital if a workable
and safe compromise is to be reached!
Some aquaculture systems have key electrical and mechanical components that can
benefit from specialist surveys carried out by qualified electrical and mechanical
engineering surveyors. This is particularly relevant in the case of high density and
pumped and aerated systems that require continuous power to keep them operating–such
production units are true life-support systems that must be backed up by reserve
generators and backup pumps. All systems must be “failsafe;” they must be properly
designed and installed, rigorously tested, and the farm staff who operate them must be
properly trained and able to deal with all possible maintenance and breakdown
scenarios. There are thousands of industrial processes outside aquaculture that have
similar characteristics; that are regularly surveyed by the insurance industry’s electrical
and mechanical inspectors, and these experts, again, have prevented billions of dollars of
losses.
In the end, each producer unit has to demonstrate that the physical structure and
arrangement of the farm is adequate enough and safe enough to protect the stock19 in it!
The insurance industry can make a major contribution in this area, and the fish farmer
who does not accept this may find that insurance is not available to him.
3.2.4.2
Biological Surveys
Alongside the physical exposures of aquaculture are the biological risks of the industry.
These present different risk management challenges for underwriters, and need to be
surveyed separately. Disease, however, is an important economic peril that producers
need to be able to obtain insurance protection against.
19
Safety considerations do not just apply to stock! The health and safety of fish farm employees is also a major
consideration, and increasingly insurance surveyors have become involved in this area, too.
18
When the contemporary industry first started in the early ‘70s, it was largely ignorant of
the biological risks it faced. Knowledge of the species involved and their tolerance to
husbandry conditions was often unknown. The same is still true of the new species that
are being brought into cultivation. The major producers employed the in-house
biologists who were often the leading experts in the species being raised. The principle
species farmed in the ‘70s--e.g., salmon, trout, and catfish--were the “new” species of
the day, and farming them involved embarking on a massive learning and development
curve, which everyone connected with the industry–from farmers and their in-house
biologists, to equipment manufacturers and insurers–had to go through. Again, the losses
experienced were massive, but over the years many lessons were learnt, and insurers
developed a separate pool of biological survey skills.
A small group of surveyors from the insurance industry’s general surveyor pool acquired
considerable knowledge of the biological risks of aquaculture and became skilled at
surveying biological risks. Additionally, some biologists were brought in from
academia20 to carry out biological inspections, and expanded their skills to include the
physical exposures that farms faced. The two groups now form a pool of risk
management surveyors that are available to carry out combined biological and physical
surveys of conventional aquaculture production units of all kinds.
The challenge for insurers and their inspectors is to handle the new “new” species, such
as cod and tuna, which are coming under cultivation and constitute the next step in
aquaculture’s development. The growing methods and equipment used to rear the new
species will closely follow those the industry has already developed for salmon, trout
and other “conventional” species. But new species undoubtedly pose new biological
risks and will suffer their own diseases and peculiar biological problems. Until these
become clear, and until means of dealing with them effectively emerge, it is unlikely
that disease cover on new species will be available to producers.
The biological risks of aquaculture have to be treated separately from the physical risks,
but it is inescapable that, to an important extent, they are related. However, with the
passage of time and the accumulation of experience, cover against the biological risks
inherent in each new species should become available. The second wave of producers,
following on from the pioneers in each new species, should be able to benefit from the
very evolving biological risk management services the insurance industry offers and
biological insurance should become available in each case.
3.2.4.3
In-House Survey Organisations
Some specialist insurers have set up their own risk management survey organisations
and carry out very structured surveys, to their own specifications, of their policyholders’
sites. From the point of view of the insurer, this brings a consistency to surveying that
can be valuable in managing risks. To the policyholder, it should demonstrate a high
level of specialisation that encourages confidence in the company concerned.
20
Universities and government research centres have led aquaculture’s worldwide biological research and development
effort. In the early days of aquaculture skilled research workers from the former were used extensively by underwriters
to carry out biological surveys and assist with the handling and mitigation of disease and plankton bloom losses.
19
3.3. Terms, Conditions and Policy Structures
3.3.1. Policy Formats
The objective of all policy wordings is to fairly represent the interests of insured and the
insurer. Ignorance of the industry and its risks meant that the early attempts to create
aquaculture policy wordings were fraught with problems. Time and experience,
however, have led to the development of policies that address the issues of the industry,
and create a contract framework within which underwriter and insured can confidently
operate.
The aquaculture market offers two types of policies: “All Risks21” and “Named Perils.”
Whereas “All Risk” policies start from the point of covering every risk, subsequently
excluding certain standard perils (see Footnote 19) and any specific perils that may be
part of each deal negotiated with an individual producer, Named Perils policies operate
in reverse. They only cover the risks specifically named as being covered, adding and
defining where necessary any extra perils for which cover is negotiated.
In layman’s terms, every policy of insurance should broadly address six key issues:
what is covered, where it is covered, what it is covered against, how it is valued, what
the policyholder should do if a claim occurs, and what general conditions apply.
Though the two systems of cover are quite different22 in approach, each one broadly
deals with the six key issues. There are therefore clauses, definitions and exclusions that
are common to each. However, the situation is complicated by the fact that some
definitions may be incorporated into each system, but at different levels.
For example, “pollution” is a specific peril that is commonly insured in every named
perils policy; named perils policies therefore automatically contain a definition of it.
However, because “All Risk” policies automatically cover everything, including
“pollution,” there is no need for them to contain a definition of it - unless the insurer
wishes to specifically exclude it! If pollution is to be excluded from an “All Risks”
policy, then it has to be defined in order to state precisely what is being excluded. The
same also applies if, under an “All Risks” policy, an insurer wishes to apply a specific
self-insurance factor to a particular peril; the peril has to be defined if there is any room
for doubt as to what is exactly meant by the peril’s name.
3.3.2. Common23 Clauses, Definitions And Exclusions
Common Clauses
Basis of Valuation
Premium Adjustment
No Claim Bonus
Average
Subrogation
Non-disclosure
Material Changes
Loss Reporting
Notice Clause – Assured
Notice Clause – Underwriters
Procedures in event of a loss
Right of access
21
The former is not in fact true “All Risks,” as policies contain standard insurance industry-wide exclusions of perils,
such as Nuclear Risks, and War, Strikes, Riots and Civil Commotions.
22
It is debateable whether “All Risks” or Named Perils is the best form of coverage for the producer. There are good
arguments on both sides! In the final analysis, there is probably little difference between them, each one suiting
different producers according to their different situations and insurance requirements.
23
Common to both “All Risks” and Named Perils policies.
20
Sue & Labour
Warranties24
Stock is in sound health at commencement of insurance.
Protective Maintenance
Definitions
Pollution Definition
Exclusions peculiar to aquaculture
Normal Trade Mortalities
Mysterious Disappearance
Malicious acts of the policyholder
Compulsory Slaughter.
Losses commencing before the start of the insurance.
Property of others – unless agreed by underwriters.
Specific exclusions related to the farm insured.
Standard insurance exclusions
War, Terrorism, Strikes, Riots, and Civil Commotions
Nuclear Risks. (e.g. Radioactive contamination etc.)
3.3.2.1
Analysis of Common Clauses
3.3.2.1.1 Basis of Valuation
The standard valuation method used in aquaculture policies is the “cost
incurred value,” i.e., the costs incurred in growing the stock through to final
market size. These are used to create values in basis of indemnity tables. These
establish values for each of a range of sizes, starting with the size at which
stock arrives on a farm and covering a number of logical size bands from the
starting size until the final “table food fish” size, or the size at which the stock
is sold on, as in the case of a hatchery.
Consequential loss cover is not generally available to fish farmers, but the cost
incurred value formula can be extended to include an additional percentage
which is designed to provide an element of loss of profit.
Example Basis of Valuation (Indemnity) Table for Salmon
Smolts up to 100 gm.
Post Smolts 100 - 200 gm.
200 - 500 gm.
Young Stock 500 gm. - 1 kilo
1 kilo – 2 kilos
Fish over 2 kilograms
Broodstock
Scale 1
(Pounds Sterling)
@ £1.50
@ £2.00
@ £2.50
@ £3.00
£ 3.00 per kilo
£ 3.20 per kilo
£10.00 per kilo
Scale 2
(US Dollars*)
$2.48
$3.30
$4.13
$4.95
$4.95 per kilo
$5.28 per kilo
$16.50 per kilo
* at a rate of US$1.65 to £1.00 Sterling
24
In basic insurance, a “Warranty” is “a condition precedent to cover;” i.e., if a warranty is breached or broken by the
policyholder, the whole policy is rendered null and void. However, this is not always acceptable under the law in some
countries, because cover can be voided in a loss situation where the breach of warranty has nothing to do with the cause
of loss, and that is considered to be unfair.
21
3.3.2.1.2 Premium Adjustment Clause
Because the deductible levels used in aquaculture policies are substantial and
are generally applied to each and every individual loss, it is clear that a
situation could arise where a farm suffered a series of losses, each falling
below the deductible, yet together amounting to a severe overall loss that could
not be claimed under the policy. In such circumstances, it would be unfair if
the farm had to pay the full premium. It was also recognised that any farm can
have a “bad year,” with poor stock growth as well as high normal trade losses,
and that the effect of this would be that overall farm values would be less than
had been anticipated at the start of the policy. In both situations the exposure of
underwriters is reduced!
To cater for the monthly fluctuations that are the norm in aquaculture, a
monthly reporting feature was devised for policies, and its inclusion has now
become normal practice in aquaculture insurance.
The common practice in structuring a policy for a producer is to establish a
maximum sum insured across the insured location using projected growth and
survival figures, computed against the Basis of Valuation Table. This then
becomes the Policy Sum Insured, which is used to calculate the policy’s full
premium by using the policy rate. Projected monthly values are estimated, and
a deposit (for example, 60 percent25) premium is then levied, which becomes
the initial payment made at the inception of the policy.
Deposit premium example calculation:
Maximum Sum Insured: $750,000 Rate: 4.25% Deposit: 75%
Full premium
= $750,000 x 4.25% = $31875.00
Deposit premium = $31875.00 x 60% = $19125.00
Each month during the policy term, a report is required to be made of the
highest value on the farm during the month. At the end of the policy term, all
the reports are totalled and the full amount divided by the number of months in
the policy terms. This produces an average value across the policy period to
which is applied the rate to produce an “earned” premium. The earned
premium is then related to the deposit premium; if the earned premium is
higher than the deposit, an additional premium is charged; if it is lower, a
refund (often limited to a maximum amount) is made.
Premium adjustment example
Month
January
February
March
April
May
June
25
Reported Values26
$550,000
$697,000
$750,000
$740,000
$750,000
$590,000
Deposit premiums are often calculated on the policyholder’s projected values, and may be lower than 60%. Insurers
do not like to return premiums when a policy is adjusted because it adversely affects their underwriting figures. Instead,
they prefer to try and accurately predict what the average monthly values will be, and thus calculate a reasonably
precise deposit premium that is likely to generate a small additional premium. Insurers will often cap the amount they
will return, and returns are generally not made if a claim or claims have been paid.
26
These examples are not intended to convey the actual rise and fall in any particular production system.
22
July
August
September
October
November
December
$450,000
$227,000
$223,000
$nil
$250,000
$475,000
--------------Total: $5,702,000
--------------Average monthly value = Total ÷ 12 = $475,167
Earned premium = average monthly value x the rate)
= $475,167 x 4.25%
=
$20,194.58
Deposit premium = $19,125.00
Earned premium = $20,194.58
--------------The earned premium is more than the deposit premium; therefore an additional
premium is due: $1069.58
This system of adjusting values on a monthly basis is widely used in
aquaculture policies; it adjusts the inevitable fluctuations in farm values and
fairly reflects the interests of both a farm and its underwriters. The months
when the farm is empty are taken into account; so too are any losses that may
not be recovered27.
3.3.2.1.3 No Claim Bonus Clause
In order to encourage their good policyholders to renew with them, some
underwriters will give no claim bonuses on the renewal of policies that are
claim free.
3.3.2.1.4 Average Clause
Average clauses are common in all types of property insurance, often known as
“under-insurance” clauses. They require policyholders to insure for the full
value of the insured interest covered by the policy.
In aquaculture, when a loss occurs, in addition to calculating the value of the
fish or shellfish lost, an adjuster will always work out what the total value of all
the insured stock on the farm was, at the commencement of the loss, according
to the policy terms. If the sum insured in the policy is not high enough to cover
that value, the insured will be proportionally penalised in any loss settlement.
If, for example, a producer has a policy sum insured of $500,000 but the actual
value of the stock on the farm when a loss occurred was $750,000, only twothirds of any claim will be paid.
3.3.2.1.5 Subrogation Clause
A Subrogation Clause gives insurers the right to benefit from any right of
recover that a policyholder has against third parties who may be held
27
Note: If insurers pay losses, the full premium is deemed to be earned, and underwriters will not generally give a
refund.
23
responsible for a loss. This is a common practice in all areas of insurance, but it
is of particular importance in aquaculture because losses are heavy and
underwriters need to look to every means to reduce them.
3.3.2.1.6 Non-disclosure
This is a clause that protects insurers from the failure of the insured to reveal a
fact that is of material significance. An example would if it was not disclosed
that a trout farm was located in a place that had been severely flooded, albeit
that the flood may have occurred years before. This example serves to illustrate
an important point – producers should not make decisions about the relevance
of, in this case, the time period since the last flood. Nor should they assume,
for example, that the fact that the local authorities have put in flood control
measures removes the need to disclose the occurrence of the flood. The golden
rule is to disclose the event and put forward the mitigation action taken by
government and let the underwriter have the full picture. If the underwriter
decides to apply a special condition, the farmer has the right to argue the case,
and can always, if he is really confident, elect to buy cover without flood.
3.3.2.1.7 Material Changes Clause
This is a clause of crucial importance in aquaculture, and this cannot be
emphasised strongly enough!
When an insurer agrees to cover a risk, it does so on the basis of the
information it has been given on the basis of what its underwriter knows in his
own right, and on what its surveyor tells it in the survey report. If important
changes are made to the system or the way of rearing the insured species – in
other words, if “risk related” changes are made, the Material Changes clause
requires that they must be reported to the insurer, who has the right to refuse to
cover losses resulting from the changes, or charge an extra premium for them,
or even cancel the policy with immediate effect!
This at first sight may appear to be a draconian clause. However, it should not
be seen as that! The insurer is not trying to get out of insuring the risk, it is
merely trying to avoid losses! In 90 percent of cases, there is no problem in
making material changes to the layout of a site or to its growing procedures and
systems – provided underwriters are consulted in advance!
The clause can leave the farmer in a predicament of uncertainty in some
circumstances as to whether a change of husbandry practice is material.
However, common sense will usually provide the answer, but the golden rule
again is – when in doubt, advise underwriters of the change.
3.3.2.1.8 Loss Reporting Clause
Extensive reference is made in other sections of this report to the importance of
handling losses in aquaculture in a very proactive way. This approach is
applied through the loss reporting clauses in policies. Almost universally, these
instruct policyholders on exactly what to do in the event of, as said elsewhere
herein, an event that might cause a loss. The clauses contain the name and
telephone numbers of local representatives who can act on behalf of
underwriters. The intention is to give insureds clear instructions about the
people to contact whenever a claim occurs. Losses in aquaculture have a habit
24
of occurring at the worst time: on public holidays, the middle of the night, on
long weekends, at Christmas, etc.
The Loss Reporting Clause often goes beyond specifying who should be
contacted and under what circumstances. Specific instructions are often given
about taking samples and giving underwriters and their representatives the right
to take samples and have them analysed. The clauses also confer on the
representatives of underwriters the right to access the insured’s farm in the
event of a loss report, under penalty of denying the claim if access is not
granted by the policyholder.
3.3.2.1.9 Notice Clause
Underwriters retain the right to cancel a policy at any time by giving a requisite
period of notice – normally 30 days, but in the case of war, seven days. The
insured is also able to give notice at any time by giving notice of an appropriate
period. The clause specifies the terms of cancellation, i.e., the period involved,
and the actual procedures to be used: for example, “by registered, recorded
delivery” to a specific address.
3.3.2.1.10 Sue & Labour Clause
In the event of a loss, or the threat of a loss, the insured producer is required to
carry out any activities that will contribute to reducing or eliminating the loss.
Insurers will contribute to expenses incurred in this way, according to the terms
of the Sue & Labour Clause.
3.3.3. Specific Clauses, Definitions and Exclusions
3.3.3.1 All Risks Covering Clause
This clause sets the terms under which the policy provides cover, and a typical opening
statement might read: “This insurance policy covers the Insured against loss occurring
during the period of insurance as specified hereunder.”
3.3.3.2 Named Perils Covering Clause
Again, this clause sets the terms under which a Named Perils policy provides cover, and
a typical opening statement might read: “The Underwriters hereby agree subject to the
following terms and conditions to indemnify the Assured in respect of Mortality or loss
of fish stock at the insured location(s) due to Pollution (as defined) and Perils as stated
in the attached Schedule up to but not exceeding the sum insured and in accordance with
the basis of indemnity stated in the Schedule or with the replacement cost of the said fish
stock whichever is the less.” The risks generally28 covered under a Named Perils Policy
might be:
3.3.3.2.1 Land Based Systems:
1)
2)
3)
4)
28
Pollution (as defined)
Malicious Acts, Theft, Predation
Flood, Tidal Wave
Storm Damage, Subsidence, Landslip, Structural Failure,
Breakage or Blockage of any part of the Water Supply
System
The wording of the perils, and the actual perils described, can differ from policy to policy.
25
5) Drought, Fire, Lightning, Explosion, Earthquake
6) Freezing, Frost Damage, Frazil Ice
7) Mechanical Breakdown or Accidental Damage to
Machinery and other installations
8) Electrical Breakdown, Failure or Interruption of the
Electricity Supply, Electrocution
9) Deoxygenation due to Vegetation, Microbiological
Activity or High Water Temperature
10) Any other change in concentration of the normal
chemical
constituents of the water, including supersaturation with
dissolved gases and change in pH or salinity.
11) Disease
3.3.3.2.2 Marine Systems:
1) Pollution
2) Malicious Acts, Theft
3) Predation or physical damage by predators or other
aquatic organisms (excluding by sea lice or other
ectoparasites)
4) Storm, Lightning, Tidal Wave, Collision, Sudden and
Unforeseen Structural Failure of Equipment
5) Freezing, Supercooling, Ice Damage
6) Deoxygenation due to competing biological activity or to
changes in the physical or chemical conditions of the
water, including upwelling and high water temperature
7) Any other change in concentration of the normal
chemical constituents of the water, including change in
pH or salinity
3.3.3.2.3 Key Named Perils Policy Clauses, Definitions and Exclusions
Definitions
Again, definitions can differ from policy to policy, but the following is a
widely used definition of “pollution:”
Pollution shall mean the presence of any foreign substance or material of a
toxic nature that causes mortality or results in total loss of market value. Such
presence is to be established by analysis of water samples taken at the time of
the loss, and/or by examination of affected fish.
A key point is to note that the presence of pollution has to be proved by
analysis of a water sample taken at the time of the loss.
Note also the definition does not cover “the absence” of any substance: e.g.,
oxygen, unless the absence is caused by “the presence of a foreign substance,”
which might be a plankton bloom.
26
3.3.4. Self-Insurance Factors, Bases of Valuation
In the general insurance market, the process of devising insurance rates and
corresponding terms and conditions varies from being a science to an art!
At the scientific end of the spectrum, insurers have extensive statistics on which to base
rating decisions. Such statistics often cover many years of experience across wide
sectors of an industry, and represent data sources that are specific, accurate, and relative
to cover given. Automobile and house insurance are classes that would fall into this area.
At the other end of the spectrum lie often new classes of insurance where there is either
no or very little data.
Aquaculture quite definitely falls into the “art” end of the rating spectrum!
After nearly 30 years of experience in the class, the processes for establishing rates are
only marginally more scientific than they were in the early ‘70s. There are many reasons
why this is so, and none of them fit into any scientific rationale.
Firstly, aquaculture insurance is a very small insurance class. Secondly, there are very
few standard systems in use in aquaculture; virtually every growing system is unique. At
the risk of over-simplifying an analogy, there are no standard “Ford” or “General
Motors” type production systems that underwriters know will conform to very closely
established configurations, and can establish rates, terms and conditions for accordingly.
Using the same analogy, aquaculture production units even vary as to the number of
wheels they have! Finally, the range of potential losses in aquaculture is extraordinarily
wide and extraordinarily diverse in terms of effect.
In order to cater to the diversity of losses, and particularly for different extents of
damage and loss different losses can bring about, the market has developed a range of
self-insurance techniques that enable underwriters to apply selective terms to specific
perils according to their frequency and effect, all within a single policy framework.
3.3.4.1 Deductibles and Franchises
In theory, an insurance policy could indemnify a producer for every single fish lost.
However, the purpose of insurance is to protect against fortuitous losses, and not
inevitable ones! In any large population of creatures, there will always be an on-going
loss of small numbers of the creatures from multiple causes. These losses are described
in aquaculture insurance policies as “Normal Trade Mortalities” (see above) and are a
standard exclusion in all aquaculture policies.
In addition to Normal Trade Mortalities, farms are bound to suffer other small losses,
none of which will cause serious financial loss, and it does not make commercial sense
to bring such losses into the insurance arrangement – if insurers were to pay for each
fish lost, the premiums they would have to charge would be very high. The main
purpose of insurance is therefore to protect against catastrophes. Two underwriting tools
are used in aquaculture to eliminate common, run-of-the-mill losses. These are:
The deductible – an amount, usually a fixed sum, or a percentage of the sum
insured, which is deducted from each loss before payment is made.
Example of a deductible of 20 percent of the sum insured applied to disease, each
event being treated separately. Thus:
27
Example A.
Sum insured = $500,000 Deductible 20% = $100,000
A disease loss of $75,000 is below the deductible so would not be
claimable.
A disease loss of $120,000 is above the deductible, so $20,000 would be
paid.
The franchise – a monetary amount, or a percentage of the sum insured, which
must be exceeded before a claim is paid. Thus:
Example B.
Sum insured = $500,000 Franchise 20% = $100,000
A disease loss of $75,000 is below the franchise so would not be
claimable.
A disease loss of $120,000 is above the franchise, so $120,000 would be
paid.
Sometimes the two are used together, and a franchise is applied with a deductible of, say
10%. Thus, using Example B:
Example C.
Sum insured = $500,000 Franchise 20% = $100,000 Deductible 10% =
$50,000
A disease loss of $75,000 is below the franchise so would not be paid.
A disease loss of $120,000 is above the franchise, so $120,000 would be
paid, less the deductible of $50,000, i.e., $70,000.
The pricing of aquaculture policies is complicated by the use of franchises
and deductibles, of which there are unlimited combinations.
3.3.5. The Rating Process.
The rate together with the self-insurance factors that are offered on a risk represent the
underwriter’s view of the degree of hazard the risk is exposed to. However, the producer
does not always agree, and many rating offers are not taken up by farmers who prefer to
remain totally self-insured. This is a feature of the insurance market that is hard to
rationalise.
Evaluating Proposal Form and Survey Information.
The insurer will evaluate the proposal form information and the information provided by
the survey and will structure rates and deductibles and/or franchises that, according to
the underwriting experience, meet the risk levels of the farm and will provide sufficient
premium into the underwriting premium pool to allow the risk to be accepted.
Rates and Rating.
We have already stated that the rating of aquaculture is much more an art than a science!
This is further qualified by another factor – the need to attract business!
Rates are formulated to produce an underwriting profit. However, since the aquaculture
market started, perceptions of the risks of the business by the underwriter and the farmer
seem to be different. Underwriters believe (and the evidence so far suggests they are
right) that the industry is more hazardous than the producers believe it to be. Herein lies
a conundrum in aquaculture insurance that has yet to be resolved!
The business that insurers are underwriting has undoubtedly proven to be high risk and
of marginal profitability to them, yet there are large sectors of aquaculture that are well
28
managed and sophisticated which do not buy insurance. Presumably this is either
because producers believe it is not cost effective to do so, or because their business plans
do not have room for premium payments at the rates insurers are charging; they thus opt
to go uninsured.
To a certain extent, purchase of insurance is determined by the financial structure of the
farm. If it is financed by borrowings secured on the business, banks will usually insist on
insurance cover being purchased. However, if financing is through private equity, or
through borrowing secured by individuals as a last resort, insurance cover may not be
purchased.
The acceptability of insurance rates and terms and conditions to the producer is an area
of the business that urgently needs independent study. The insurance industry seems
perplexed at why producers do not buy cover, especially when insured losses fairly
regularly exceed the premiums gathered, which would indicate that insurance was “a
good buy.” But farmers think it is too expensive.
We cannot provide an explanation of this contrary view. However, one factor that is
undoubtedly significant is farm profitability. The margins in salmon farming and catfish
farming are extremely thin! It may well be the case that, no matter how low rates are, the
producers in both industries simply cannot afford to buy cover.
The very flexibility of such rating structures as there are in aquaculture make giving
example of rates, especially examples which will hold up against testing in the market,
almost impossible to provide; however, the following are some examples which will
help give a idea of what may be available:
All Risks example rates (Note: Rates change constantly!):
Species & System.
Salmon (& Trout) in
gravity flow hatchery.
Salmon fry to smolt (&
small Trout). ) in gravity
flow tanks, ponds.
Salmon (& Trout) in
marine cages.
Tuna in holding cages.
Cod in cages.
Fish in still water ponds
(ex salmonids).
Oysters, mussels and
shellfish.
Other species, eg
Abalone, Turbot, Halibut
Special Terms
& Deds.
C.S.* 50% of
whole site
C.S.* 50% of
whole site
Disease
Deds.
20%
of site
35%
of site
A.O.P. Deds.
10% to 15%
of site
15% to 25%
of site
Rates % of av’ge m’thly
value
From – To
4.50% to 5.50%
4.55% to 4.75%
C.S.* for ISA+
30%
30%
3.5% of average monthly
50% of whole
per cage.
per cage
value.
site.
C.S. cover not
20% deductible per cage
6% to 8%
available.
Excluding
35% per cage 35% per cage
3.50 to 4.00%
Costia. CS* not
group
group
available.
No Special
35%
15% to 25%
3.50% to 4.00
Terms
of site
of site
Rates and terms not available when Report prepared.
C.S. cover not
available.
* C.S. = Compulsory slaughter.
+
ISA = Infectious Salmon Anaemia
Named Perils example rates:
35% per
production
section
20%
3.5% to 4.75%
29
Possible Named Peril Rates
Available From London Aquaculture Insurers - Autumn 2003
1
OFFSHORE BASE DATA
Perils Insured
Base Rate
Base Deductible
P1 - Pollution
P2 - Theft, Malicious Acts.
P3- Predation etc
P4 – Storm, Structural Failure etc.
P5 – Freezing etc.
P6 – De-O2 due to biological
activity etc.
P7 – Change in water chemistry
etc.
P8 – Disease
2
ONSHORE BASE DATA
Perils Insured
Salmon Juveniles
Base Rates
Base Deductible
P1 – Pollution
P2 – Theft,
Malicious Acts,
Predators
P3 – Flood, Tidal
Wave
P4 – Storm,
Structural Failure
P5 – Drought, Fire
etc.
P6 – Freezing etc
P7 – Mechanical
Breakdown
P8 – Electrical
Breakdown etc.
P9 – De-O20due to
biological activity.
P10 – Change in
water chemistry
P11 – Disease
Salmon/Char
4.5%
20% of Site Value
0.50
0.20
0.40
0.90
0.50
0.80
Bass/Bream
3.65%
20% of Site Value
0.40
0.25
0.30
0.80
0.10
0.60
0.50
0.50
0.75
0.70
Trout Ponds
5.20%
20% of Site Value
0.40
0.20
4.40%
15% of Site Value
0.60
0.70
Intensive
Recirculation
6.10%
20% of Site Value
0.40
0.20
0.40
0.50
0.30
0.60
0.40
0.60
0.25
0.30
0.40
0.25
0.80
0.40
0.20
0.30
1.00
0.70
0.10
0.50
0.40
0.50
0.50
0.40
0.20
0.80
0.80
0.50
0.60
NOTE: The above rates are for theoretical farms with average exposure for each peril. In practice, farms are predisposed to some perils and have reduced exposures to others. Rates will vary considerably, according to Loss Record,
Deductibles, and the view of the underwriter.
The overall picture of the take up of insurance across the aquaculture industry is patchy.
Most of the major salmon farms appear to buy cover; most of the trout farming industry
appears not to. Catfish farming appears to be completely uninsured, though this may be
more due to the way the business is conducted than to any other factor. It is extremely
difficult for catfish farmers to meet the requirements of commercial insurance regarding
proof of loss, and this virtually rules them out of buying cover.
Another example of the lack of any scientifically designed rating structure in
aquaculture is the tuna holding industry. This industry has developed out of the general
decline of the hunted stock brought about by severe over fishing.
30
A practice has developed in a number of areas, from the Mediterranean to Mexico and
Australia, in which relatively young tuna are caught and held in net pens where they are
on-grown.
The price of tuna is very high and the insurable values of the stock in these pen cage
systems are accordingly very high indeed. They are so high in fact, that the conventional
aquaculture insurance market cannot cover them. Insurers have had to be found to take
up the very large proportion of the business that the conventional market cannot cover.
As has already been alluded to, aquaculture has a reputation of being very high risk!
Thus the only way to attract additional underwriting markets has been to offer
underwriters very high rates. Consequently the rates being offered on this sector of the
business can go as high as 6 percent or even 8 percent, and those based on per kilogram
values of US$10.00 against a market value per kilogram in excess of US$30.00!
3.3.6. Binding Coverage
Once terms and conditions are settled between the underwriter and the proposer, usually
after the negotiating skills of the broker have been put to full use, insurance cover can be
“bound;” i.e., coverage put into effect. Thereafter, as soon as possible, a full copy of the
policy should be issued by the insurer and sent to the insured. Even before that is done,
however, the insurance agent should provide the producer with a Cover Note29, which
clearly displays all the terms of the policy. It is vital that insureds know exactly what all
the terms of their policy are.
3.3.7. Operating the Policy
It will be clear to readers that aquaculture insurance is a very complicated business! The
one piece of advice that every producer should follow is never to put the aquaculture
policy in the bottom drawer of a filing cabinet and forget about it! An aquaculture policy
is one policy that should be readily available all the time. It is also a policy the important
parts of which all employees on a farm should be familiar with, and every employee
should be instructed as to what to do in the event of a loss.
29
A “Cover Note” is a statement of the terms of the policy that is to be issued by the insurer.
31
4. The Makeup of the Underwriting Market in 2003
The world underwriting market for aquaculture stock insurance is limited to a small number of
specialist primary insurance companies and Lloyd’s underwriters, situated in a number of countries,
but with most located in the UK and Norway.
The first market to underwrite aquacultural stock insurance was Lloyd’s of London circa 1973.
Aquaculture business was presented to Lloyd’s Underwriters by insurance brokers who recognised
the difficulties of handling the class, and set out to become specialists in the field.
Shortly after Lloyd’s entered the market, Norwegian companies began to offer primary cover,
followed by companies in other markets. As has been discussed, primary underwriters depended on
the availability of reinsurance protection, and the agricultural departments of the major reinsurance
companies became involved in the developing market. In 2003, contemporary aquacultural
insurance in Europe could broadly be said to be comprised largely of English, Scandinavian (mainly
Norwegian), and French capacity, plus some Dutch, Spanish, Greek and Italian capacity, with
almost all local markets being backed by German, French, Swiss and London reinsurance markets.
Outside Europe, some indigenous capacity is available in Chile, Australasia, Japan, India and
throughout Southeast Asia, but in all cases insurance availability is heavily dependent on European
reinsurance and top-up capacity and especially on its underwriting expertise.
Development of the insurance market in Norway was greatly influenced by the large aquaculture
industry in the country, which began to mushroom in the early ‘70s. Norway has a very long,
indented, coastline that is ideal for fish farming, plus a long tradition of fishing, fish handling,
processing and consumption of fish products. The country’s production capacity expanded
massively in the ‘70s, ‘80s and ‘90s, and Norwegian aquaculture companies aggressively involved
themselves in aquaculture projects overseas, exporting their technology and buying up production
capacity in many emerging industries. Expansion was funded by a mixture of debt and equity;
Norwegian banks soon required insurance protection of stock as a matter of routine; investors
similarly looked to producers to protect their investments’ most important assets. When Norwegian
interests overseas are taken into account, Norway is one of the largest players on the world
aquaculture scene. Norwegian producer organisations are substantial buyers of stock insurance.
4.1. Availability of Insurance, Specifically in the USA in 2003
4.1.1. The General Situation
The situation regarding the availability of aquaculture insurance in the Unites States of
America is very unclear.
It is known that the US subsidiary operations of major international producers (mainly of
salmon) are covered under their groups’ worldwide insurance arrangements. It is also
known that a limited number of small salmon producers in the Northeast and Northwest
USA have purchased insurance in the past, but the present status of their cover is
unknown. This is especially so for the producers in Maine who suffered from the severe
superchill conditions in early 2003.
Historically, several attempts have been made to provide insurance schemes to the US
catfish industry. These efforts were mainly made by US insurance agents working under
Surplus Lines30 regulations with international insurers, especially Lloyd’s of London.
30
Insurance regulations in the USA impose restrictions on overseas insurers conducting business in the USA, with the
general exception of circumstances in which local US licensed insurers are unwilling to provide cover, or when very
large capacity is required, which is greater than licensed US insurers can provide.
32
However, it is thought that all these foundered, for various reasons, some of which have
already been covered in this report. Coverage was also offered in Hawaii, but again, the
present status there is unknown, and the same can be said of Alaska.
A number of years ago31 coverage was also in place on at least one significant abalone
farming operation, but it is believed that this is no longer the case and coverage ceased
some years ago. It is also believed that a number of the major trout farms, particularly in
Idaho, were insured in the ’90s, and may still be so. Finally, the Federal Crop Insurance
Corporation recently32 began to provide cover on clams in certain coastal areas.
The picture of aquaculture coverage in place in mainland33 USA, is therefore somewhat
patchy and uncertain, and further study would be required to clarify it.
4.1.2. Constraints on the Availability of Cover in the USA
In general there are no constraints on the availability of aquaculture insurance in the
USA, other than all the constraints on worldwide availability that are outlined in this
Paper. As has already been alluded to, catfish farming poses practical and technical
problems regarding “Proof of Loss,” and these are not easy for conventional insurers to
overcome.
The status of disease legislation, which is administered independently by individual
states, will undoubtedly influence the availability of cover against compulsory slaughter
and restriction of movement, but the situation in this area is no more complicated than it
is in the rest of aquaculture.
It is not apparent that there are any species being farmed in the USA that could not be
handled by the market, albeit that there are some species that would be “new” to
insurers. We also do not believe that the sizes of US risks are so great that the present
market could not handle them, always providing that the uncertainties about the future
underwriting capacity of the world market, as outlined herein, are borne in mind.
As regards the fundamental conditions and perils that might be available, these would be
governed by the underwriting principals and practices that the international market has
developed. There are clearly certain risks for which it would be difficult to obtain cover,
for example, earthquake and flood in certain areas that are particularly prone to them.
But, again, this is no more that applies in the rest of the world.
4.1.3. Trends in Availability of Cover in USA
At the time of the production of this report, there would appear to be only one US
insurer actively involved in aquaculture insurance, The Hartford. Just as in the rest of the
world, there do not appear to be any signs that other companies are about to enter the
class. Under the Surplus Lines regulations already referred to, local insurance agents are
able to access the world market, but they face the same constraints as have already been
referred to. The trends in availability are therefore fairly negative.
31
In the early ‘90s.
Circa 2002.
33
I.e., in the lower 48 states.
32
33
4.2. Worldwide Insurance Players in 2003
Leading International Specialist Primary Underwriters:
Sunderland Marine Mutual Insurance Co. – Sunderland, UK.
Wellington Underwriting – Lloyd’s of London, UK
Markel Underwriting – Lloyd’s of London, UK
National Specialist Primary Underwriters:
Agrotiki - Greece
Cruze del Sur – Chile
Hartford Fire - USA
IF - Norway
Gjensidige - Norway
NEFO Fender - Norway
Vesta - Norway
Leading International Reinsurance Markets:
GE Frankona
Hannover Re
Munich Reinsurance
Partner Reinsurance
SCOR
Swiss Re
Leading International Specialist Brokers:
Aquarius Insurance Services Ltd.
AON Insurance Brokers
SBJ Nelson Steavenson Ltd.
4.3. Countries where Aquaculture Insurance is Transacted, or in which there exist
Interests in Stock which are Insured, or have been Insured in the Past:
Australia
Canada
Chile
Denmark
Finland
France & Possessions
Germany
Greece
Holland
Honduras
Iceland
Ireland
Italy
Japan
Korea, South
Mexico
New Zealand
Norway
Portugal
Spain
Sweden
Turkey
UK
USA
34
Acknowledgements:
In compiling this report, we held listening sessions with the following companies:
Aquarius Insurance Services Ltd.
GE Frankona Re
Gjensidige Forsikring AS
Heath Lambert Norway AS
Munich Reinsurance
NEFO Fender AS
Partner Reinsurance
S.B.J. Nelson Steavenson.
Sunderland Marine Mutual Insurance Company
Swiss Reinsurance
We are very grateful for their comments on the status of the current insurance market, the issues
it faces, and the general availability of aquaculture insurance.
35
APPENDICES
Page No.
I
Example of a typical on-shore, pond, tank and raceway proposal
form for an application for named perils cover.
36
II
Example of a typical Named Perils policy wording.
47
III
Example of a typical offshore cages proposal form.
57
IV
Example of a typical “All Risks” wording in the form of a certificate
for attachment to the policy jacket of an insurer.
62
36
APPENDIX I
Example of a typical on-shore, pond, tank and raceway proposal form for an application for
named perils cover.
Aquaculture Insurance Application Form
for Stock held in Land-Based Locations
CONFIDENTIAL
This form is intended to gather sufficient information to enable the best possible insurance terms
to be obtained on your behalf. It is therefore in your best interests to answer all the questions as
fully as possible and supply supporting documentation.
In addition to completing and returning this application form you should enclose the
following documents in order to obtain the best terms from Insurers:
Site Map
Stock projections
Photographs
Stock record sheets
CV of manager(s)
The Applicant
Name and address of applicant:
……………………………………………………………
…………………………………………………………………………………………………….
Telephone number:
………………………………………………………………………….
Facsimile number: ……………………………………………………………………………
e-mail address:…………………………………………………………………………………
Contact name(s)…………………………………………………………………………………
Telephone number(s):………………………………………………………………………….
Location of site(s) at which stock are to be insured. If multiple sites please provide details on a
separate sheet.
Name and Location
Year established
37
Please supply the name(s) and address of any parties whose interest should be noted in the
insurance.
……………………………………………………………………………………………………
Please advise extent of interest:
……………………………………………………………………………………………………
……………………………………………………………………………………………………
INSURANCE REQUIREMENTS
Please indicate which of the listed perils you wish to obtain cover against:
1.
Pollution.
Yes
No
2.
Malicious acts, theft, predators.
Yes
No
3.
Flood, tidal wave.
Yes
No
4.
Storm damage, subsidence, landslip, structural failure, breakage or
blockage of any part of the water supply system.
Yes
No
5.
Drought, fire, lightning, explosion, earthquake.
Yes
No
6.
Freezing, frost damage, frazil ice.
Yes
No
7.
Mechanical breakdown or accidental damage to machinery and other
installations.
Yes
No
Electrical breakdown, failure or interruption of the electricity supply,
electrocution.
Yes
No
Deoxygenation due to vegetation, microbiological activity or high
water temperature.
Yes
No
Any other change in concentration of the normal chemical constituents
of the water, including supersaturation with dissolved gases and change
in salinity.
Yes
No
Disease.
Yes
No
8.
9.
10.
11.
Certain of the above perils may not be available in specific locations.
Please detail any individual requirements:
……………………………………………………………………………………………………
……………………………………………………………………………………………………
38
SITE DETAILS
Holding units
Dimensions
Material of construction
Please provide details of the security and anti-predator measures in use at the farm, such as
fencing, gates, netting, night watchmen and guard dogs.
……………………………………………………………………………………………………
If the general public are allowed on the site,
please provide details.
………………………………………………………………………….
How long has the site(s) been established?
………………………………………………………………………….
Since when has it been used to grow the
species to be insured?
………………………………………………………………………….
WATER SOURCE
Please provide details of the source of water to all
holding units. If there are multiple sources explain
………………………………………………………………………….
which source supplies which unit and whether the
water is mixed. Use a diagram if possible.
………………………………………………………………………….
What is the minimum volume of water available
………………………………………………………………………….
to you (Cubic metres per second) and at what
time of year does this occur?
………………………………………………………………………….
What limits the supply (i.e. is this restricted by
pump capacity, abstraction licences or other
factors)?
………………………………………………………………………….
39
Are any of the following possible pollution sources located on the watercourse from which you
take water or within a 4km radius of your site?
Please tick the appropriate box
Villages or towns – please provide names and
their approximate population.
Yes
!
No !
Farms, or other agricultural operations or
forestry.
Yes
!
No !
Fish Farms, fish processing plant and/or other
aquaculture operations.
Yes
!
No !
Abattoirs, manufacturing installations or other
commercial enterprises.
Yes
!
No !.
Water treatment facilities such as sewage works
or septic tanks.
Yes
!
No !
Quarries, mines or any other source of suspended
solid or particulate pollutants.
Yes
!
No !
Any other possible sources of pollution?
Yes
!
No !
If you have answered ‘yes’ to any of the above,
please give full details.
……………………………………………………………………………………………………
……………………………………………………………………………………………………
Please provide full details of the minimum and maximum levels of the following criteria which
have been recorded on your site(s).
Minimum
Maximum
Salinity (ppt)
pH
Water temperature (°C)
Dissolved Oxygen Concentration (Mg/1)
Is your site exposed to flooding? If so, provide details of the circumstances in
………………………………………………………………………….
which you believe this might occur and the likely frequency.
………………………………………………………………………….
If applicable, please provide details of any measures that you have taken to prevent or reduce
the risk of flooding
………………………………………………………………………….
40
If you are downstream of dams or reservoirs, please provide details of these.
………………………………………………………………………….
Please provide details of any aeration or oxygenation systems that are in use either on a routine
basis or for emergency backup.
………………………………………………………………………….
If your system re-uses or recirculates water please complete the supplementary questionnaire.
THE STAFF
Provide name(s) of the individual site manager(s)
……………………………………………………………………………………………………..
What are their qualifications and experience and length of service at the relevant site
……………………………………………………………………………………………………..
Also enclose a brief CV
……………………………………………………………………………………………..
How many staff are employed at this site?
..……………………………………………………………………………………………..
Is the site permanently staffed?
……………………………………………………………………………………………….
If no, how close to the site does the nearest employee live and what are the arrangements for
night time and weekend supervision?
………………………………………………………………………………………………..
Have you had any dispute or disagreement with any of your current or former employees that
might, in your opinion, increase the risk of a malicious act which could affect your stock?
………………………………………………..…………………………………………………
THE STOCK
Which species of fish or shellfish do you rear and what is the percentage split per site if more
than one species is held?
State the maximum tonnage per site …………………………………………………………
Month
During which months are ova and/or juvenile stock
introduced?
Number
…………………
……………..
……………….
……………
41
Which supplier(s) do you normally obtain ova, juvenile stock or broodstock from?
……………………………………………… ……………………………………………………..
If health certification is provided, what is its scope and who is it issued by?
……………………………………………… ……………………………………………………..
How will the value of your stock vary during the period of the policy? Take account of
projected growth, stocking and harvesting strategies.
………………………………………………………………………………………………..
Please state the values for which you would like to insure your stock. The value of the stock
may be calculated in accordance with size, age or month of growth.
………………………………………………………………………………………………..
A suggested basis of indemnity is attached but this may be amended for your own particular
situation.
……………………………………………………………………………………………….
Please calculate the maximum anticipated value that will be at risk during the proposed period
of insurance
…………………………………………………………………………………………………
OR
Please provide stock value projections for each month of the period of the proposed insurance,
calculated in accordance with your selected basis of indemnity (see previous question)
………………………………………………………………………………………………….
N.B. This figure will be the sum insured in the policy if you decide to proceed. It is
therefore very important that it is not underestimated as the policy contains an average
clause that will significantly reduce the amount of a claim payable if the value at risk at the
time of loss exceeds the sum insured.
What is the anticipated maximum stocking density (Kg/M³), when will this occur and for how
long is it likely to persist?
……………………………………………………………………………………………………..
How do you record and check stock numbers and weights?
……………………………………………………………………………………………………..
If you use computer records, how often are fish sampled as a check?
42
……………………………………………………………………………………………………..
If available, provide a specimen stock record sheet and computer printout
STOCK HEALTH AND HUSBANDRY
If you do not use commercially produced pellet feed please provide details of the feed you use.
……………………………………………………………………………………………………..
What is your average anticipated trade mortality percentage from intake to sale?
……………………………………………………………………………………………………..
What are the usual causes of these mortalities?
……………………………………………………………………………………………………..
What routine disease screening/analysis do you conduct?
……………………………………………………………………………………………………..
Do you have your own laboratory or other stock health monitoring facilities?
……………………………………………………………………………………………………..
Provide details of independent consultants, veterinary surgeons and back-up laboratories
that you use.
……………………………………………………………………………………………………..
How often do any of these visit the site or receive stock samples from you?
……………………………………………………………………………………………………..
Do wild fish live upstream of your site?
……………………………………………………………………………………………………..
If so, are any of these from migratory species?
……………………………………………………………………………………………………..
Please specify the diseases you vaccinate against, type of vaccine and method used.
Intake
Vaccine used/Disease protected
Method
Please give the disease history for each site over the last five years?
Month
43
……………………………………………………………………………………………………..
Please provide details of diseases which you know or suspect to have occurred on other
aquaculture units in the last five years within a 25 km radius of your site.
……………………………………………………………………………………………………..
Please provide details of disinfection protocols for staff and equipment movements between
sites.
……………………………………………………………………………………………………..
Please also provide any further details of husbandry or other practices which you employ in an
attempt to reduce the likelihood of introduction or severity of impact of disease pathogens
(including parasites).
…………………………………………………………………………………………………………………
ENGINEERING DETAILS
Do you have an alarm system?
……………………………………………………………………………………………………..
If yes, please confirm method of monitoring the following parameters.
……………………………………………………………………………………………………..
Water level and flow (e.g. high/low pump activity, whether in each holding unit, header tanks,
inflow, outflow, etc.).
……………………………………………………………………………………………………..
Dissolved Oxygen Concentration (e.g. high/low levels, automatic or manual monitoring)
……………………………………………………………………………………………………..
Electricity supply (e.g. automatic generator back-up, audible alarm, etc.)
……………………………………………………………………………………………………..
Any other parameters?
……………………………………………………………………………………………………..
Please describe how the power is supplied to the farm from utilities, i.e. underground/overhead.
If overhead, describe the approximate distances involved.
44
…………………………………………………………………………………………………………………
Please provide details of how the alarm alerts you to a problem, particularly outside working
hours.
……………………………………………………………………………………………………..
When was your alarm installed?
…………………………………………………………………………………………………………………
How often is it tested and serviced and by whom?
…………………………………………………………………………………………………………………
Is there a maintenance contract in force?
…………………………………………………………………………………………………………………
Please provide a copy of the alarm specification if available.
What design features are incorporated to prevent blockage of inlet screens, pipes and valves?
……………………………………………………………………………………………………..
What actions are taken to check and prevent blockage of the supply system and with what
frequency?
……………………………………………………………………………………………………..
The remaining questions in the engineering details section of the application relate
primarily to pumped water supplies please, therefore, answer N/A if they are not
applicable to your system.
Detail how many pumps are utilised and what their individual capacity is.
……………………………………………………………………………………………………..
Do you rely on all these pumps for normal operation? If not, what is the inbuilt overcapacity?
……………………………………………………………………………………………………..
How long would it take you to replace a pump outside working hours and are your staff able
to do this?
…………………………………………………………………………………………………………………
45
What standby systems are available in event of pump failure and/or loss of mains electricity
supply?
……………………………………………………………………………………………………..
Are your generators automatically activated by mains power failure or do they have to be
manually started?
……………………………………………………………………………………………………..
How often are they tested?
……………………………………………………………………………………………………..
Please provide details of further life support systems or strategies that are available to you
in an emergency such as backup oxygenation or water re-use capacity.
……………………………………………………………………………………………………..
How many separate supply pipes/channels are there from the water source to the farm?
……………………………………………………………………………………………………..
Insurance Details
Name your current stock mortality insurers and policy expiry date.
……………………………………………………………………………………………………..
Details of current/last stock mortality insurance including extent of deductible/franchise,
contingencies insured.
……………………………………………………………………………………………………..
If available, please attach a copy of the current policy schedule.
Has any insurer declined, cancelled, refused to renew or imposed restrictive terms on any stock
mortality insurance you have arranged or applied for?
……………………………………………………………………………………………………..
Please provide full details of all stock mortalities or losses other than normal trade losses
during the past five years even if these did not result in an insurance claim.
……………………………………………………………………………………………………..
46
If necessary, use a separate piece of paper to provide full details.
In your opinion, are there any material facts which might render the insurance of your stock a
greater or lesser risk than would otherwise be the case?
……………………………………………………………………………………………………..
N.B. Failure to disclose any relevant material facts may result in Insurers declining to
pay a claim. It is, therefore, important that this question is answered correctly. If you
are in any doubt as to whether a set of circumstances or a fact is material then you should
disclose it.
DECLARATION
(to be signed by the applicant)
N.B. Signing this form does not commit the applicant or the Insurers to complete the
insurance contract, However, it is agreed that this form shall be the basis of the insurance
contract should a policy be issued.
I warrant the truth and accuracy of the statements contained in this application form. I
understand that any false statement or material fact not disclosed may prejudice my right to
compensation under the insurance for which I am now applying.
I further declare that, to the best of my knowledge and belief, my stock are free from physical
disability and in sound health and that all equipment, machinery and protective systems
necessary for the containment and continuing survival of the stock are also in good condition.
Signed: …………………………………………………………………….
Date: …………………………….
This application form has been issued by and should be returned to:
47
APPENDIX II
Example of a typical “Named Perils” policy wording. The wording must be read in conjunction
with the schedule at the end of the wording, which lays out the details of the policy holder:
AQUACULTURE FARM POLICY
The Assured named in the attached Schedule has made to the Underwriters a written proposal
bearing the date stated, which is hereby agreed to be the basis of this contract and to be
considered as incorporated herein.
The Underwriters hereby agree subject to the following terms and conditions to indemnify the
Assured in respect of Mortality or loss of fish stock at the insured location(s) due to Pollution
(as defined) and Perils as stated in the attached Schedule up to but not exceeding the sum
insured and in accordance with the basis of indemnity stated in the Schedule or with the
replacement cost of the said fish stock whichever is the less.
DEFINITION
POLLUTION shall mean the presence of any foreign substance or material of a toxic nature, which
causes mortality or results in total loss of market value. Such presence to be substantiated by analysis
of water samples taken at the time of the loss and/or by examination of affected fish.
EXCLUSIONS
This Policy does not cover
1. Intentional Slaughter whether by Order of official body or otherwise.
2. Malicious or wilful act of the Assured or any employee of the Assured.
3. Mysterious and or unexplained shortages.
GENERAL EXCLUSIONS
RADIOACTIVE CONTAMINATION AND EXPLOSIVE NUCLEAR ASSEMBLIES
EXCLUSION CLAUSE.
This Policy does not cover
a)
Loss or destruction of or damage to any property whatsoever or any loss or expense
whatsoever resulting or arising therefrom or any consequential loss
b)
any legal liability of whatsoever nature
directly or indirectly caused by or contributed to by or arising from
i) ionising radiations or contamination by radioactivity from any nuclear fuel or
from any
nuclear waste from the combustion of nuclear fuel.
ii) the radioactive, toxic, explosive or other hazardous properties of any explosive nuclear
assembly or nuclear component thereof.
48
ELECTRONIC DATE RECOGNITION EXCLUSION (EDRE)
This Policy does not cover any loss, damage, cost, claim or expense, whether preventative, remedial
or otherwise, directly or indirectly arising out of or relating to:
a)
the calculation, comparison, differentiation, sequencing or processing of data involving
the date change to the year 2000, or any other date change, including leap year
calculations, by any computer system, hardware, programme or software and/or any
microchip, integrated circuit or similar device in computer equipment or non-computer
equipment, whether the property of the Assured or not; or
b)
any change, alteration or modification involving the date change to the year 2000, or any
other date change, including leap year calculations, to any computer system, hardware,
programme or software and/or any microchip, integrated circuit or similar device in
computer equipment or non-computer equipment, whether the property of the Assured or
not.
This clause applies regardless of any other clause or event that contributes concurrently or in any
sequence to the loss, damage, cost, claim or expense.
WAR EXCLUSION CLAUSE
Notwithstanding anything to the contrary contained herein this Policy does not cover loss,
damage or liability
directly or indirectly occasioned by, happening through or in
consequence of war, invasion, acts of foreign enemies, hostilities (whether war be declared or
not), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation or
nationalisation or requisition or destruction of or damage to property by or under the order of
any government or public or local authority.
GENERAL CONDITIONS
1. In respect of each and every loss or series of losses arising out of one event, Underwriters
shall only be liable to pay in excess of an amount to be borne by the Assured for his own
account. The deductible amount shall be calculated by applying the percentage stated in the
Schedule to the total value at risk immediately prior to the loss.
2. On the happening of any event as a result of which a claim is or may be made under this
Policy, the Assured shall at his own expense produce and furnish to the Underwriters or their
representatives such books of account, stock control records and other business documents
proofs, information and other evidence as they may reasonably require for the purpose of
investigating or verifying the claim.
3. If at the date of the loss there are any other insurances in force effected by or on behalf of the
Assured covering such loss or any part of it, the liability of the Underwriters hereunder shall
be limited to their rateable proportion of such loss.
4. In the event of Underwriters becoming liable for any loss, the sum insured shall be reduced
by the amount of the loss. Underwriters may however at the request of the Assured agree to
reinstate the full sum insured, subject to payment of the appropriate additional premium.
5. This Policy may be cancelled at any time at the request of the Assured in writing and the
premium shall be adjusted on the basis of Underwriters receiving or retaining short term
premium as follows:-
49
Risk Period
up to
1 month
2 months
3 months
4 months
5 months
6 months
7 months
8 months
9 months
Over 9 months
Percentage of
Annual Premium Payable
20%
30%
40%
50%
60%
70%
75%
80%
90%
100%
This Policy may also be cancelled by or on behalf of Underwriters by thirty days' notice
given in writing to the Assured at his last known address and the premium shall be adjusted
on the basis of Underwriters receiving or retaining pro rata premium.
6.
This Policy is subject to the condition of average, that is to say, if the insured fish stock
shall at the time of any loss be of greater value than the sum insured at the affected
location(s) stated in the Schedule and calculated in accordance with the Basis of Indemnity,
the Assured shall only be entitled to recover hereunder such proportion of the said loss as
the sum insured bears to the total value of the said fish stock. In the event of the application
of average, the deductible amount shall be calculated thereafter.
7. In the event of Underwriters becoming liable for any loss, they shall become subrogated to
all the rights and remedies of the Assured against any party in respect of and to the extent of
such loss. The Assured shall give to the Underwriters all such information and assistance as
they may reasonably require and at Underwriters request and expense shall execute all
documents necessary to enable Underwriters to prosecute in the name of the Assured.
NO CLAIMS BONUS ON RENEWAL CLAUSE
In the event of no claim having been made on this Policy and the renewal of this Policy being effected under
SBJ Nelson Steavenson Contract (AQ/303) with certain Underwriters at Lloyds, Underwriters will allow to the
Assured a No Claim Bonus of 10% of the premium paid hereon, it being understood that no obligation on
Underwriters or the Assured to renew is implied.
PREMIUM ADJUSTMENT CLAUSE
1.
It is noted and agreed that the premium stated in the Schedule is a minimum and/or
deposit premium, being calculated at the premium rate on the sum insured and
adjustable upon expiry of this Policy on the average of monthly declarations provide by
the Assured of the highest value at risk during the preceding month. In the event of any
claim payments exceeding the deposit premium then the deposit premium shall become
the minimum premium.
2.
a) In the calculation of any loss, the basis of indemnity and value(s) at risk at the time of
loss shall be deemed to be those applying immediately prior to the loss, due account
being taken of the growth of the fish stock and sales and mortalities since the date of
the last completed monthly declaration.
b) In the event of the amount of the last completed monthly declaration prior to a loss
being found to be less than the amount that ought to have been declared, the
50
indemnity afforded by this Policy shall be reduced in the same proportion that the
amount of the said declaration bears to the amount that ought to have been declared.
c) In the event of the failure of the Assured to supply monthly declarations of values at
risk within a reasonable period of time of the due date, the amount declarable for
premium adjustment purposes (but not in the calculation of any loss hereunder) shall
be deemed to be the full sum insured stated in the Schedule.
d) In the event of loss, the full annual premium shall be deemed to have been earned by
Underwriters in respect of the gross amount of any claim settled hereunder, without
regard to sum insured.
SUE & LABOUR CLAUSE
Notwithstanding the Assured’s duties warranted under Special Condition 1 herein Underwriters will subject to the
terms and conditions of this Policy, reimburse the Assured for certain expenses, known as Sue & Labour expenses,
properly and reasonably incurred solely for the purpose of avoiding or minimising any actual or imminent loss
hereunder.
EXCLUSIONS
This Policy extension does not cover
1. The costs of medication, veterinary, laboratory and other specialist fees incurred in the
diagnosis, treatment, prevention or containment of Disease as defined herein.
2. Overtime costs and expenses of the Assured and their employees.
3. Any amount in excess of 20% of the sum insured for each separate location stated in the
Schedule.
BASIS OF INDEMNITY
Underwriters hereby agree to indemnify the Assured for 50% of the agreed expenses and without regard to the
deductible stated in the Schedule. Such indemnity shall be without prejudice to either party’s rights under the
Policy and in particular shall not constitute a waiver of Underwriters rights hereunder of affirmation of the Policy.
SPECIAL CONDITIONS
1.
It is warranted that
The fish stock insured hereunder shall be in sound health and free from physical
disability at the commencement of this Policy and/or at the time of delivery to the
Assured holding units if delivered during the period of the insurance.
The Assured shall use due diligence and do and concur in doing all things reasonably
practicable to avoid or diminish any loss.
2.
Protection Maintenance Warranty
It is warranted that the Assured and their site managers shall maintain in complete working order unless
damaged by an external cause beyond the control of the Assured such protective systems and warning devices
as existed at time of attachment of the Policy or which the Assured has agreed to install, and that no change
shall be made to them without Underwriters agreement. All such protective systems and warning devices shall
be tested regularly every week and logged accordingly. In addition the Assured shall maintain all marine
cages, nets and moorings in good order at all times.
Failure to comply with this Warranty shall render all claims hereunder null and void.
51
3.
The Assured shall give immediate advice to Underwriters of any change in the installations
or of any potential new source of pollution at the insured location and of any other material
change in the risk insured. Underwriters reserve the right to amend the terms and conditions
of this Policy as a result of such change.
4.
It is a condition precedent to Underwriters liability that in the event of any circumstance
that could give rise to a claim hereunder immediate notice must be given by telephone or
facsimile to:
The Assured is requested to read this wording and, if it is incorrect, return it immediately for
alteration. In all communications the Policy Number appearing in line one of the Schedule
should be quoted.
PROCEDURE IN THE EVENT OF LOSS
1.
ADVISE UNDERWRITERS IMMEDIATELY VIA **************************
AND/OR YOUR OWN INSURANCE AGENT IN TERMS OF SPECIAL CONDITION
3&4 OF THE POLICY.
2.
Take water samples immediately, and at periodic intervals after the loss, from within and in
the vicinity of the holding units.
3.
Take measurements of water temperature, flow rate and dissolved oxygen levels at the time
of loss, and record any other relevant parameters (e.g. pH, weather conditions).
4.
Take photographs of the loss and/or damage.
5.
Report the loss immediately to the responsible Local Authority, and in the event of
malicious act or theft, to the Police.
6.
If a disease outbreak is suspected, call your veterinary advisor immediately. Send live fish
for histological examination, and arrange for samples of dead fish to be frozen and
preserved for future examination.
7.
Do not dispose of any dead fish until instructed to do so by Underwriters representatives.
Leave in the location where loss occurs unless this endangers any surviving fish. If you
have to dispose of dead fish, numbers and weights should be certified by an independent
third party.
8. In terms of General Condition 2 of the policy, carefully log the sequence of events as they
unfold, recording the time and action taken by different employees. Preserve all records for
subsequent examination by Underwriters representatives.
STATUTORY CONDITIONS/CONDITIONS
SCHEDULE A - (COMMON LAW)
(Fire - Statutory Conditions)
(all Perils - Additional Conditions)
CONDITIONS
The conditions as set out below apply to all of the perils insured by this Policy either as
STATUTORY CONDITIONS or as contractual conditions as the law may require.
52
STATUTORY CONDITIONS/CONDITIONS
Misrepresentation
If a person applying for Insurance falsely describes the property to the prejudice of the Insurer, or
misrepresents or fraudulently omits to communicate any circumstance that is material to be made known to the
Insurer in order to enable it to judge of the risk to be undertaken, the contract is void as to any property in
relation to which the misrepresentation or omission is material.
Property of Others
Unless otherwise specifically stated in the contract, the Insurer is not liable for loss or damage to property by
any person other than the Insured, unless the interest of the Insured therein is stated in the contract.
Change of Interest
The Insurer is liable for loss or damage occurring after an authorized assignment under the Bankruptcy Act or
change of title by succession, by operation of law, or by death.
Material Change
Any change material to the risk and within the control and knowledge of the Insured avoids the contract as to
the part affected thereby, unless the change is promptly notified in writing to the Insurer or its local agent, and
the Insurer when so notified may return the unearned portion, if any, of the premium paid and cancel the
contract, or may notify the Insured in writing that, if he desires the contract to continue in force, he must,
within fifteen days of the receipt of the notice, pay to the Insurer an additional premium, and in default of such
payment the contract is no longer in force and the Insurer shall return the unearned portion, if any, of the
premium paid.
Termination
1.
This contract may be terminated:
(a) by the Insurer giving to the Insured fifteen days' notice of termination by registered mail or five days'
written notice of termination personally delivered;
(b) by the Insured at any time on request.
2.
Where this contract is terminated by the Insurer:
(a) the Insurer shall refund the excess of premium actually paid by the Insured over the pro rata premium
for the expired time, but, in no event, shall the pro rata premium for the expired time, be deemed to be
less than any minimum retained premium specified; and
(b) the refund shall accompany the notice unless the premium is subject to adjustment or determination as
to amount, in which case the refund shall be made as soon as practicable.
3.
Where this contract is terminated by the Insured, the Insurer shall refund as soon as practicable the excess
of the premium actually paid by the Insured over the short rate premium for the expired time, but in no
event shall the short rate premium for the expired time be deemed to be less than any minimum retained
premium specified.
4.
The refund may be made by money, postal or express company money order or cheque payable at par.
5.
The fifteen days mentioned in clause (a) of subcondition 1 of this condition commences to run on the day
following the receipt of the registered letter at the post office to which it is addressed.
Requirements After Loss
1.
Upon the occurrence of any loss of or damage to the insured property, the Insured shall, if the loss or
damage is covered by the contract, in addition to observing the requirements of
conditions 9, 10, and 11.
(a) forthwith give notice thereof in writing to the Insurer;
(b) deliver as soon as practicable to the Insurer a proof of loss verified by a statutory declaration.
(i)
giving a complete inventory of the destroyed and damaged property and showing in detail
quantities, costs, actual cash value and particulars of amount of loss claimed.
(ii)
53
stating when and how the loss occurred, and if caused by fire or explosion due to ignition,
how the fire or explosion originated, so far as the Insured knows or believes.
(iii)
stating that the loss did not occur through any wilful act or neglect or the procurement, means
or connivance of the Insured.
(iv)
showing the amount of other insurances and the names of other insurers.
(v)
showing the interest of the Insured and of all others in the property with particulars of all
liens, encumbrances and other charges upon the property.
(vi)
showing any changes in title, use, occupation, location, possession or exposures of the
property since the issue of the contract.
(vii)
showing the place where the property insured was at the time of loss:
(c) if required, give a complete inventory of undamaged property and showing in detail quantities, cost,
actual cash value:
(d) if required and if practicable, produce books of account, warehouse receipts and stock lists, and
furnish invoices and other vouchers verified by statutory declaration, and furnish a copy of the written
portion of any other contract.
2.
The evidence furnished under clauses (c) and (d) of subcondition 1 of this condition shall not be
considered proofs of loss within the meaning of conditions 12 and 13.
Fraud
Any fraud or wilfully false statement in a statutory declaration in relation to any of the above particulars,
vitiates the claim of the person making the declaration.
Who May Give Notice and Proof
Notice of loss may be given and proof of loss may be made by the agent of the Insured named in the contract in
case of absence or inability of the Insured to give the notice or make the proof, and absence or inability being
satisfactorily accounted for, or in the like case, or if the Insured refuses to do so, by a person to whom any part
of the insurance money is payable.
Salvage
1.
The Insured, in the event of any loss or damage to any property insured under the contract shall take
all reasonable steps to prevent further damage to such property so damaged and to
prevent damage to other property insured hereunder including, if necessary, its removal
to prevent damage or further damage thereto.
2.
The Insurer shall contribute pro rata towards any reasonable and proper expense in connection with steps
taken by the Insured and required under subcondition 1 of this condition according to the respective
interests of the parties.
Entry, Control, Abandonment
After loss or damage to insured property, the Insurer has an immediate right of access and entry by accredited
agents sufficient to enable them to survey and examine the property, and to make an estimate of the loss or
damage, and after the insured has secured the property, a further right of access and entry sufficient to enable
them to make appraisement or particular estimate of the loss or damage, but the Insurer is not entitled to the
control or possession of the insured property, and without the consent of the Insurer there can be no
abandonment to it of insured property.
Appraisal
In the event of disagreement as to the value of the property insured, the property saved or the amount of the
loss, those questions shall be determined by appraisal as provided under the Insurance Act before there can be
any recovery under this contract whether the right to recover on the contract is disputed or not, and
independently of all other questions. There shall be no right to an appraisal until a specific demand therefore is
made in writing and until after proof of loss has been delivered.
54
When Loss Payable
The loss is payable within sixty days after completion of the proof of loss, unless the contract provides for a
shorter period.
Replacement
1.
The Insurer, instead of making payment, may repair, rebuild, or replace the property damaged or lost,
giving written notice of its intention so to do within thirty days after receipt of the proofs of loss.
2.
In that event the Insurer shall commence to so repair, rebuild, or replace the property within forty-five days
after receipt of the proofs of loss, and shall thereafter proceed will all due diligence to the completion
thereof.
Action
Every action or proceeding against the Insurer for the recovery of any claim under or by virtue of this contract
is absolutely barred unless commenced within one year next after the loss or damage occurs.
Notice
Any written notice to the Insurer may be delivered at, or sent by registered mail to, the chief agency or head
office of the Insurer in *******. Written notice may be given to the insured named in the contract by letter
personally delivered to him or by registered mail addressed to him at his latest post office address as notified to
the Insurer. In this condition, the expression "registered" means registered in or outside ******.
ADDITIONAL CONDITIONS
Notice to Authorities
Where the loss is due to malicious acts, burglary, robbery, theft, or attempt thereat, or is suspected to be so due,
the Insured shall give immediate notice thereof to the police or other authorities having jurisdiction.
No Benefit to Bailee
It is warranted by the Insured that this insurance shall in no way inure directly or indirectly to the benefit of any
carrier or other bailee.
Pair and Set
In the case of loss of or damage to any article or articles, whether scheduled or unscheduled which are a part of
a set, the measure of loss of or damage to such article or articles shall be a reasonable and fair proportion of the
total value of the set, but in no event shall such loss or damage be construed to mean total loss of set.
Parts
In the case of loss of or damage to any part of the insured property whether scheduled or unscheduled,
consisting, when complete for use, of several parts, the Insurer is not liable for more than the insured value of
the part lost or damaged, including the cost of installation.
Sue and Labour
It is the duty of the insured in the event that any property insured hereunder is lost to take all reasonable steps
in and about the recovery of such property. The Insurer shall contribute pro rata towards any reasonable and
property expenses in connection with the foregoing according to the respective interests of the parties.
Basis of Settlement
Unless otherwise provided, the Insurer is not liable beyond the actual cash value of the property at the time any
loss or damage occurs and the loss or damage shall be ascertained or estimated according to such actual cash
value with proper deduction for depreciation, however caused, and shall in no event exceed what it would then
cost to repair or replace the same with material of like kind and quality.
55
Subrogation
The insurer, upon making any payment or assuming liability therefore under this Policy, shall be subrogated to
all rights of recovery of the Insured against any person, and may bring action in the name of the Insured to
enforce such rights. Where the net amount recovered after deducting the costs of recovery is not sufficient to
provide a complete indemnity for the loss or damage suffered, that amount shall be divided between the Insurer
and the Insured in the proportions in which the loss or damage has been borne by them respectively.
SCHEDULE
Contract number
Policy number
Quote
The Name and address of the Insured
Policy Wording 483NSB00204
Aquaculture Canada Farm Policy
The period of the insurance
From ……………. To ……………… both dates
inclusive Local Time or until the date of slaughter or
removal from the insured location, whichever shall first
occur.
The species of stock insured
The Sum(s) Insured
Limit to any one location.
Limit any one holding unit
Basis of Indemnity
As attached
The insured location(s)
1
2
Mortality or physical loss of stock
caused by an Insured peril as listed in this
schedule, subject to the terms, limitations,
conditions, definitions, exclusions and
warranties in the Insurance.
1
2
3
4
5
6
7
8
Pollution
Theft and Malicious Acts
Predation or physical damage by predators or
other aquatic organisms (but not sea lice or
other ectoparasites)
Storm, Lightning, Tidal Wave, Collision,
Sudden and Unforeseen Structural Failure of
Equipment
Freezing, Supercooling, Ice Damage
Deoxygenation due to competing biological
activity or to changes in the physical or
chemical conditions of the water, including
upwelling and high water temperature
Any other change in concentration of the
normal chemical constituents of the water,
including change in pH or salinity.
Disease.
56
The disease period
… days as per disease wording.
Disease Extension Clause 483NSB00201
The deductible
…………..% of value at risk at the time of loss in
……….. separately.
Country of Law and Jurisdiction
Canada
Additional Conditions
The rate of premium and minimum and deposit
percentage
Adjustable at expiry
A rate of ………..
% applied to ………% of the
sum insured to produce a deposit premium and subject
to Insurers retaining a minimum premium calculated by
applying this rate to ……….% of the sum Insured.
The premium as calculated above
The Insurers
100% CERTAIN UNDERWRITERS AT LLOYD’S
Placing information given to Underwriters.
Application form dated:
Renewal declaration dated:
Additional information
This information forms the basis of the insurance contract and is deemed to be incorporated therein
E&OE
57
APPENDIX III
Example of a typical off-shore cages proposal form for “All Risks” cover on Salmon.
Proposal Form - Offshore Farms
In addition to completion of this form, please supply the following if possible - tick items enclosed:FARM LAYOUT PLAN
MOORING DIAGRAM
CVs
Site Survey
Photographs
Stock Control Records
Chart/Map of Area
Monthly Stock Projections
Other Records
)
) Sample
) Sheets
(Fish Health/Diving/Equipment Maintenance)
Please answer all questions below - a dash is not sufficient.
I.
THE FARM
(a)
(b)
(c)
(d)
i.
Name and full address of Proposer and/or
Fish Farm.
i.
ii.
Contact name(s).
ii.
iii.
Telephone and Fax Numbers.
iii.
i.
Geographical location of Fish Cages.
i.
ii.
Fresh or sea water? (State normal salinity)
ii.
i.
Give names of all fish farms with a 25 km.
radius. (If more than five, state "multiple")
i.
ii.
Which is the nearest cage farm to your own?
ii.
i.
Number, size, type and/or make of cages.
(Including material and date of construction)
i.
How many separate cage groups are there
and what is their minimum distance apart?
ii.
ii.
(e)
(f)
(g)
Describe the mooring/anchorage system for
your cages OR detail on your mooring diagram.
i.
Are the moorings laid in accordance with
the manufacturer's recommendations?
If not, state reason.
i.
ii.
By whom were they laid?
ii.
i.
How often are the moorings inspected?
i.
58
ii.
(h)
i.
ii.
iii.
(j)
When was this last done and by whom?
(If possible, supply copy of most recent survey)
ii.
Make and age of nets and whether or not
antifouled.
i.
Comment on your net system, including
details of anti-predator netting.
ii.
How often are nets changed?
iii.
net depth.
minimum water depth beneath the nets.
tidal range.
minimum and maximum water temperature.
minimum dissolved oxygen concentration.
i.
ii.
iii.
iv.
v.
State:
i.
ii.
iii.
iv.
v.
(k) State:
i.
Prevailing wind direction. (Winter and summer)
i.
ii.
Most exposed wind direction and longest
fetch. (km.)
ii.
Estimated maximum wave height.
iii.
iii.
(l)
i.
What warning or alarm systems do you have,
if any?
i.
Are marker buoys fitted with navigational
warning lights?
ii.
i.
Species produced and percentage of total stock.
i.
ii.
State month(s) of year new stock introduced.
ii.
ii.
II
THE FISH
(a)
(b) Give maximum number of fish in each year age
class which will be held on the farm at any one
time during the period of insurance.
In a single cage
i.
Smolts/1+
i.
ii.
2+
ii.
iii.
3+/Broodstock
iii.
N.B. Above size ranges are for Salmon - amend suitably
for other species.
(c)
State for each species:
i.
ii.
maximum tonnage of fish which will be held
on the farm at any one time during the period
of insurance.
i.
Estimated total annual production.
ii.
In all cages
59
(d)
Basis of Indemnity.
(e)
(See last page)
Scale 1
State maximum value at risk during the period of
insurance of all fish held on the farm, using the
Basis of Indemnity you have selected and the
time(s) of year you expect your stock to reach this
maximum.
IMPORTANT
( i)
(ii)
This figure will represent the total sum insured in the
Policy, and must not be underestimated, as claims will
only be paid in the proportion that the sum insured
bears to the total value at risk calculated in accordance
with the Basis of Indemnity selected.
Where the risk covers more than one site, give separate
figures for each site.
(f)
Does the maximum value of stock held on your
farm at any one time differ substantially from
the average value? If so, give details.
Please supply monthly stock projection sheet(s).
(g)
i.
ii.
State maximum stocking density (kg./m³)
Inventory control procedure and frequency.
i.
ii.
Please supply sample stock control record sheet(s).
(h)
III.
i.
State source of juvenile stock.
i.
ii.
If Health Certificate issued, who by?
ii.
PERSONNEL
(a)
i.
ii.
How long has the farm been established?
Do you personally manage the farm on a full
time basis?
i.
ii.
iii.
Give details of your experience in fish farming.
iii.
iv.
How long have you worked at the present site?
iv.
(b) How many staff are employed on the farm?
Give details of key personnel - name, qualifications,
experience, job and length of service.
Please supply CVs where possible.
(c)
i.
ii.
iii.
iv.
IV
Do you or any of your staff live in view of
the farm site(s)? If not, how far away?
i.
What arrangements are made for overnight
and weekend supervision?
ii.
Describe access to farm site(s) from the
closest road(s) and from your shore base.
iii.
What is the distance between your cages and
your shore base?
iv.
PERILS
(a)
Describe potential sources of pollution at
or in the vicinity of any site to be insured.
(b) Have any algal/plankton blooms
Scale 2
60
occurred at or in the vicinity of any
site to be insured? If so, give details.
(c)
i.
ii.
Comment on the water exchange and/or
flushing effect at your site.
i.
What action is taken to deal with
build-up of organic matter beneath the cages?
ii.
(d) Describe shipping/boating activity in the area.
(e)
V
Are there any other material facts in relation to any
of the perils to be insured which might, in your
opinion, render them greater than would otherwise
be the case?
If so, give details.
HUSBANDRY
(a)
(b)
(c)
(d)
i.
How often are dives made and by whom?
i.
ii.
Is a diving log kept? If so, what information
is recorded?
ii.
i.
Type and manufacturer of fish feed.
i.
ii.
Do you use automatic feeders.
ii.
Estimated percentage trade mortalities, and
likely causes.
i.
ii.
VI
Do you retain the services of a fish farming
consultant, vet, laboratory source or
government body? If yes, give details.
How often does your consultant or veterinary
advisor visit the site?
i.
ii.
INSURANCE AND LOSS HISTORY
(a)
i.
ii.
iii.
Give details of current fishstock insurance,
if any, including name of insurers and policy
expiry date.
i.
Has any insurer declined, cancelled, refused
to renew or imposed special terms on any fish
stock insurance you have effected or for which
you have proposed?
ii.
Commencing date for this insurance.
iii.
(b) Give full details of all fish stock mortalities or
losses other than normal trade mortalities during
the past five years whether or not the subject of
an insurance claim.
Give details of any legal proceedings taken by or
against you and the outcome.
(c)
Give full details of all losses of, or damage to, cages
and equipment during the past five years, whether
or not the subject of an insurance claim.
61
IMPORTANT - Please sign the declaration overleaf.
BASIS OF INDEMNITY
Scale 1
(Pounds Sterling)
Smolts up to 100 gm.
@ £1.50
Post Smolts
100 - 200 gm.
@ £2.00
200 - 500 gm.
@ £2.50
Young Stock 500 gm. - 1 kilo
Scale 2
(Any currency)
@ £3.00
1 kilo - 2 kilos
£ 3.00 per kilo
Fish over 2 kilograms
£ 3.20 per kilo
Broodstock
£10.00 per kilo
or equivalent in local currency
Scale 1 is for Salmon, or choose alternative Scale 2.
Use Scale 2 for all other species and amend size ranges in line with your answers to Question II (b).
Justify your chosen scale below.
DECLARATION (to be signed by the Proposer)
SIGNING THIS FORM DOES NOT BIND THE PROPOSER OR THE UNDERWRITERS TO
COMPLETE THE INSURANCE BUT IT IS AGREED THAT THIS FORM SHALL BE THE BASIS OF
THE CONTRACT SHOULD A POLICY BE ISSUED.
I, the undersigned, warrant the truth and accuracy of the statements contained in this proposal. I understand that
any false statement or material fact withheld may prejudice my right to indemnity under the insurance for which I
am now proposing.
I further warrant that, to the best of my knowledge and belief, my fish stock are in sound health and good condition.
Signed ___________________________________
Date ________________________
62
APPENDIX IV
Example of a typical “All Risks” wording in the form of a certificate for attachment to the
policy jacket of an insurer.
Aquaculture Insurance Certificate
Certificate No.
Insured:
Section 1
Definitions
The words below whenever used in this Certificate or the Schedule(s) of Insurance (the
“Schedule(s)”) will be given the following meaning:
You, Your, The Insured
the person or entity named in the Schedule(s) who we
have agreed to indemnify, subject to the terms and
conditions of this Certificate.
We, Us, Our
the Insurer.
Insured Stock
the living aquatic creatures or species described in the
Schedule(s).
Location(s)
the geographical location(s) of the Holding Units as
specified in the Schedule(s).
Basis of Indemnity
means the basis on which the amount of the claim is
determined and is described in the Schedule(s).
Deductible
the amount that you must bear in relation to each and every
Claim which arises from a separate occurrence, as is
described in the Schedule(s).
Sum Insured
the maximum amount of our liability to you under clause
A1 of this Certificate.
Period of Insurance
the initial period of insurance and any renewal of that
period for which you pay, and we accept payment of the
premium.
Stocking Density Limit
the total maximum permissible biomass of all the Insured
Stock in a Holding Unit divided by the cubic volume of water
in the same Holding Unit and described in the Schedule(s).
Disease
the presence of an identifiable pathogen which shall be
shown to be the proximate cause of the Loss of the Insured
Stock. For the purposes of this Certificate disease shall
include plankton bloom, algal bloom and parasitic infestation.
63
Harvesting
the moment of live removal of the Insured Stock or parts
thereof from a Holding Unit for slaughter or for transport
from the site Location(s).
Holding Unit
a single enclosure on an aquaculture farm in which the
Insured Stock or any part of it is reared, being a net, cage
tank, pond or raceway including ancillary equipment.
Loss of Insured Stock
the death or escape or proven theft of the Insured Stock or
any part thereof but not including weight loss except as may
be permitted by a notifiable disease extension to the
Certificate.
Monthly Stock Declarations
those declarations required to be made by you on a monthly
basis as to the value of Insured Stock in accordance with
the conditions of the Certificate.
Natural Mortality
the average mortality rate for the Insured Stock during a
defined period of the production cycle, based on the long
term experience.
Schedule(s) and
Endorsement(s)
the Schedule(s) of Insurance and any Endorsements
attaching to and forming part of this Certificate.
Computer Equipment
is not limited to any or any combination or part of data,
computer hardware, operating system, application,
software and computer chip including microprocessor
chip or embedded control logic, and irrespective of by
whom it is owned or operated.
Section 2
Aquaculture Stock Mortality Insurance
This section should be read with Section l of the Certificate for the meaning of certain words
and phrases used below and in the Schedule(s) which also form(s) part of the Certificate.
A.
COVERAGE
What is covered?
1. Loss of Insured Stock
Provided you have paid the premium specified in the Schedule(s) then subject to the terms and
conditions of this Certificate, we will indemnify you against the sudden and unforeseen Loss of
the Insured Stock occurring during the period of insurance. This insurance only applies whilst
the Insured Stock is at the Location(s) specified on the Schedule(s). The amount we will pay is
the value of the affected stock or the replacement value to be determined in accordance with the
Basis of Indemnity, but our liability shall be limited to the Sum Insured less the amount of the
Deductible.
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In the event of the Loss of the Insured Stock occurring within thirty days after the expiry date of
this Certificate, we will indemnify you against such loss up to the Sum Insured, provided that (a)
all terms and conditions of this Certificate have been complied with; and (b) the event giving rise
to the loss occurred during the Certificate period and was reported
to us prior to the expiry of this Certificate.
Our liability is subject to the warranties, conditions and exclusions of this Certificate.
2. Mitigation expenses extension
In addition to providing the cover in paragraph 1 above, we will, subject to prior agreement by
us, indemnify you for any expenses you reasonably incur, solely and specifically in order to
minimise or avert the risk of imminent loss or actual loss, excluding the cost of routine
medication and veterinary costs or maintenance, provided you produce to our satisfaction the
original receipts/invoices relating to such expenses incurred. The maximum amount we will pay
you under this extension will be shown in the Schedule(s) and subject to a separate Deductible
applicable to this section. In the event that you suffer a loss which is for the same amount as or
which falls below the Deductible applicable under this section, you shall not be entitled to rely
on this extension clause to recover any expenses incurred as a result of you trying to mitigate
your loss.
3. Disposal costs extension
It is understood and agreed that where you are entitled to recover a loss under clause 1 above,
this Certificate will in addition pay you for any extra expenses you reasonably incur solely and
specifically to dispose of the dead stock, provided you produce to our satisfaction the original
receipts and invoices relating to such extra expenses. The maximum amount we will pay you
under this extension will be shown in the Schedule(s) and subject to a separate Deductible
applicable to this section.
4. Disease Limitation Period
In the event of an outbreak of Disease, this Certificate shall after the date of first notification to
us, cover loss of the Insured Stock by Disease during the “Disease Limitation Period” specified
in the Schedule(s), less the Deductible and subject to the terms and conditions of this Certificate.
In the event of successive losses from the same disease outbreak, a further Deductible will be
applied to each “Disease Limitation Period” period.
B.
EXCLUSIONS
What is not covered
This insurance Certificate specifically excludes:
1. Loss of Insured Stock:
(a) being discovered at the time of Harvesting or grading; or
(b) from cannibalism or sexual maturing; or
(c) by mysterious disappearance or unexplained shortages;
(d) by reason of intentional slaughter, whether by or under the order of any
government or public authority or any person or body having
jurisdiction in the matter, or otherwise; or
(e) occurring during or after the Harvesting of such Insured Stock or part
thereof.
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1. Loss:
(a)
directly or indirectly caused by war, invasion, acts of foreign enemies,
hostilities, (whether war be declared or not), civil war, rebellion,
revolution, insurrection, mutiny, riot, strike, lock-out, civil commotion,
military usurpation of power, confiscation, commandeering, requisition
or damage or destruction by order of any government dejure or de
facto or by any public authority;
(b)
by reason of any malicious or wilful act of the Insured or any of the
Insured’s employees;
(c)
by reason of sonic bangs and their subsequent effects;
(d)
by reason of nuclear contamination howsoever arising;
(e)
by reason of Acts of Terrorism.
3.
Consequential loss (including but not limited to loss of profit and business
interruption losses), damages or expense of any kind or description and
howsoever caused, incurred or arising except as provided for by the mitigation
expenses and the disposal expenses extensions at paragraphs A2 and A3 above.
4.
Any liability whatsoever to third parties howsoever arising unless otherwise
specified in the Schedule(s).
C
WARRANTIES, CONDITIONS PRECEDENT AND GENERAL
CONDITIONS
TO ESTABLISH A VALID CLAIM PAYABLE UNDER THIS CERTIFICATE YOU MUST COMPLY
WITH THE FOLLOWING WARRANTIES AND CONDITIONS PRECEDENT TO LIABILITY AND
GENERAL CONDITIONS.
WARRANTIES
If you fail to comply with any one of these warranties, we will be discharged from liability
automatically from the date of breach and you will be unable to recover your losses under this
Certificate.
1. Stock Health
You warrant that at the commencement of this insurance all species at any insured Location(s)
are to be in sound health and free from any disease or disability, whether insured or not.
2. Equipment in good order
You warrant that:
(a)
proper care and attention is currently provided for the Insured Stock and will
continue to be provided at the Location(s); and
(b)
regular inspections of the Insured Stock will be carried out at the Location(s) to
ensure that all equipment is in the correct position and in good working order;
and
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(c)
all equipment will be serviced regularly and in accordance with the
manufacturer’s instructions.
In the event of any faulty equipment being discovered by you or your employees or those
persons in charge of looking after the Holding Units at the Location(s), you warrant that
immediate steps will be taken to rectify the fault.
3. Protection of stock
Upon the discovery of illness, disease or injury to any of the Insured Stock, you warrant
immediate and appropriate action will be taken which will include obtaining expert opinion, to
treat and contain the illness, disease, or injury.
4. Maintenance of warning system
You warrant that all protective systems and warning devices are maintained and will continue to
be maintained in proper working order and regular inspections and servicing of those systems
will take place. In addition you warrant all levees, banks, dykes and water conduits will be
maintained.
5. Maintenance of alarms and other security devices
You warrant that all alarms, security fences, and any other security devices in use at the
Location(s) are maintained and will continue to be maintained in good working order and
regular inspection of those devices and servicing will take place.
6. Changes to the risk
You warrant that you will notify us immediately or as soon as reasonably practicable of any
material changes to the Insured Stock and/or the Location(s). You warrant that you (or where
relevant, those persons in charge of the Location(s)) will not carry out any construction or
alterations at the Location(s) without our express written approval.
CONDITIONS PRECEDENT TO LIABILITY
If you fail to comply with any one of these conditions precedent to liability, then in the event of a
claim we will not be obliged to pay your claim under this Certificate.
1. Notification
(a)
It is a condition precedent to liability that you will give immediate notice to us
either directly or via the agent named in the Schedule(s) of any event that (a)
could give rise to a claim under this Certificate or (b) does give rise to a claim
under the Certificate whether or not you consider a claim is payable.
(b)
We will not pay any claim where the event giving rise to the Loss of the
Insured
Stock occurred more than seventy-two hours before notification to us by you.
Upon notification of any event by you, we reserve the right to call in
specialists
to advise in respect to any loss or circumstances likely to give rise to a loss.
(c)
It is a condition precedent to our liability that you permit our specialist(s) to
inspect the Insured Stock at any location(s) and that you take any action that
either we or our specialist suggests may reasonably be required.
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(d)
It is a further condition precedent to liability that you will provide your full cooperation to us and our appointed specialist and provide at your own expense
any documents or information we or our specialist may need to see.
2. Stock records
It is a condition precedent to liability that you keep accurate and up to date Monthly Stock
Declarations which take into account the harvested amount, additional intake of stock (if
applicable), natural mortality and loss transfer from each Holding Unit. It is a condition
precedent to liability that when making a claim under this Certificate, you will furnish to us with
reasonable dispatch and at your own expense any Monthly Stock Declaration or any other stock
records we request.
GENERAL CONDITIONS
1. Deductible
Each and every occurrence giving rise to a claim under this Certificate shall be subject to the
amount of the Deductible specified in the Schedule(s). This is the amount which you must bear
in relation to each such occurrence and is expressed as a proportion of the actual value of
Insured Stock at the Location at the time of the occurrence.
2. Application of the deductible
For the purpose of the application of the Deductible the following periods shall be considered as
separate occurrences and the Deductible shall apply in full to each such period of an occurrence.
The period of an occurrence shall be considered to have ceased when, following the occurrence
giving rise to the claim mortalities fall to a level consistent with the normal operation of the
farm, or as specified in the Schedule(s).
3. Due diligence/Mitigation
You must use due diligence and do, or agree to do, anything reasonable to avoid or diminish any
loss or potential loss. In the event of a loss occurring, you must mitigate your loss by taking any
reasonable steps.
4. Termination of cover
Cover under this Certificate ceases at the time of the Harvesting of the Insured Stock or upon the
expiry date of the Certificate, whichever occurs first.
5. Average / Under-insurance
This Certificate is subject to the condition of average which means that if the declared value of
Insured Stock at the time the loss occurs is less than 100% of the actual value of the Insured
Stock at the time the loss occurs then you shall be regarded as your own insurer for the
difference between the “Declared Value” and the actual value of the Insured Stock at the time of
loss and the amount of your claim shall be reduced in the same proportion as the declared value
bears to the actual value.
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6. Cancellation
This Certificate may be cancelled by either you or us by using the following procedure.
(a)
Procedure for cancellation
(i)
You may cancel this Certificate at any time by giving us 10 days notice
in writing from the date when cancellation is to take effect.
(ii)
We may cancel the Certificate at any time by giving you 30 days notice
in writing from the date which cancellation to take effect.
(iii)
In the case of either (i) or (ii) above, written notification can be given
personally, in which case it will take effect immediately, or it can be
posted by certified mail. Proof of mailing is sufficient proof of
notification.
(iv)
Your address for service is the address on the proposal form or the
address last notified by you to us, whichever is the latest.
(b)
Adjustment of premium
(i)
After cancellation by you, we will retain, or be entitled to the premium
for the period during which this Certificate has been in force based on
our cancellation rates.
(ii)
After cancellation by us, you will be entitled to a pro-rata refund of the
premium.
7. Transfer of interest
No interest in the Certificate can be transferred without our written consent.
8. Subrogation clause
Any party receiving a benefit under this Certificate shall, at our request, and at our expense do
and concur in doing and permit to be done all such acts and things as may be necessary or
reasonably required by us for the purpose of enforcing any rights and remedies, or of obtaining
relief or indemnity from other parties to which we shall be or would become entitled or
subrogated upon paying any claim under this Certificate, whether such act and things shall be or
become necessary or required before or after indemnification by us. Furthermore you shall not
enter into any agreement without our written consent whereby any rights to which we would
become entitled or subrogated upon paying any claim under this Certificate are prejudiced or
limited in any way. In such event all benefits normally payable under this Certificate shall be
forfeited.
9. Non Payment of Premium
In the event of non-payment of premium by you, we shall have the right to cancel this insurance
from the inception date of the Certificate or from whatever date the premium was payable, if due
in instalments.
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10. Other Insurance
If, at any time any claim arises under this Certificate and there is another insurance covering the
same Loss, we shall be released from all liability in connection with such insurance unless the
agreement of Insurers to such other insurance is endorsed on this insurance. If the agreement is
endorsed on this insurance, Insurers shall not be liable to pay or contribute more than their
rateable proportion of any claim for such Loss.
11. Fraud/Exaggerated Claims
If you shall make any claim knowing it to be false or fraudulent or exaggerated, as regards
amount or otherwise, this Certificate shall become void and all claims hereunder forfeited.
12. Choice of Law and Jurisdiction
The proper law of this contract is English law. In the event of any dispute arising under this
Certificate, the parties agree to submit to the exclusive jurisdiction of the English courts or such
other jurisdiction as may be agreed by Underwriters.
Signed …………………………………………………
For and on behalf of:
Date…………………………………………………….