Mortality Insurance for Aquaculture Operations
Published in Fish Farming News, Vol. 3-1, 1995 Copyright, Compass Publications, Inc., 1995
Author: Scott Simmonds, Morse, Payson & Noyes, Insurance

Aquaculture mortality insurance is a specialized area of coverage in which few insurance companies currently compete. Limited knowledge and experience with the aquaculture industry leads most insurers to stay away from this high-risk business.

As a consequence, rates range from fairly reasonable to downright outrageous -- and everywhere in between. Many farms have gone with no coverage because of high premiums or the mistaken belief that insurance is not available.

However, banks and investors feel more comfortable when the major asset of an operation is protected by insurance and many farmers are now buying mortality insurance in order to attract capital.

The following is an overview of the coverage available and some of the policy terms and conditions that farmers shopping for insurance will encounter.

There are two types of mortality coverage available today. The difference between the two revolves around the perils -- that is, what kills the fish. Some examples of finfish and shellfish perils are predation, lack of oxygen, virus infection, adverse water temperature, and pollution.

A "named peril" policy pays when fish die due to a peril listed in the policy.

One named peril policy on the market covers mortality caused by: "pollution; theft, malicious acts...; predation...; storm; lightning; tidal wave; collision; sudden structural failure of equipment; freezing; supercooling; ice damage; deoxygenation...; change in concentration of the normal chemical constituents of the water..."

In contrast, the other type of policy on the market is a "special peril" policy, which includes protection for all causes of loss except those that are excluded. If the cause of loss is not excluded, then coverage applies.

Exclusions may include: "war; civil commotion; nuclear incident; pollution; government authorities; and asbestos."

Deductibles
Mortality policies include deductibles -- the amount you, the insured, pay as the result of a loss. For example, the deductible on most homeowner insurance policies is $250. The insurance pays any covered loss over $250.

Mortality deductibles are more complex.

Deductibles may be a percentage of the loss. A 20% per loss deductible means that, if the total of the loss was $100,000, the insurer would provide a payment of $80,000 and the insured would pay the remaining $20,000.

Some hatcheries carry a deductible of 20% of the values at risk. So, an operation with $1,000,000 worth of fish would be responsible for paying $200,000 before the insurance carrier would pay a loss.

Another common clause is a "franchise deductible," which requires, for example, that the loss exceeds 80% of the values at risk (per cage or per site depending on the policy). If a loss is below the franchise percentage, no insurance would be paid. If the loss is above the franchise percentage, the policy then pays 80% of the loss.

Package Traps
Many operations depend upon their "package insurance policy" to cover fish located in hatchery buildings. Generally, the package policy includes coverage for buildings and contents as well as liability insurance. Several potential traps exist when using this kind of policy to protect fish.

Standard property insurance policies, like those purchased through most insurers, are not designed to provide protection for fish.

For example, there may be restrictions on the perils covered. Coverage for animals is typically limited to losses caused by fire, lightning, explosion, windstorm, hail, smoke, damage by vehicles or aircraft, riot, and vandalism. A loss caused by mechanical breakdown, disease, or pollution is not covered. Also, the policy limits protection to animals only while they are located in a building.

Any farmer depending on a package insurance policy to cover fish should get clarification on the coverage included in a policy. The insurance company should provide written acknowledgment that the subject of insurance is live fish, eggs, and/or seed. Confirmation may be an endorsement to the policy or a letter from the carrier.

Valuable help
Insurance companies can offer a variety of services to their clients, including providing advice and assistance to farmers in areas such as vaccinations and predator-prevention.

An insurance company's experience can be invaluable. For example, a farmer may have never experienced a major disease problem, but the insurer may have dealt with such a problem many times. Both the insurer and the insured can benefit from a specific, consistent loss control program.

Insurance is one tool a business can use to finance risk. Other loss control techniques are also available to fish farmers. In future issues of Fish Farming News, we will take a look at the techniques and tools available to address risk in aquaculture operations.