Check Loss of Income Insurance
Published in Fish Farming News, Vol. 3-3, 1995 Copyright, Compass Publications, Inc., 1995
Author: Scott Simmonds, Morse, Payson & Noyes, Insurance

A while back we explored the fish mortality insurance policy in this column (FFN #1, 1995). Death of stock is the greatest risk that an aquaculture operation faces.

However, mortality results in a second loss. When the fish die at any point prior to market maturity, potential profits are lost. Customers are also lost as they must find another source of product.

In all, two losses always result from the death of fish -- loss of the fish and the lost income that would have been generated by the ultimate sale.

Fish mortality insurance generally pays the market value of the mortalities based upon a schedule set within the policy. This payment does not usually include the loss of future revenues.

The future loss (outside of the mortality policy) can be stated algebraically as:

EMMP - MPM - ENI = LI

EMMP = expected mature market price
MPM = market price at mortality
ENI = expenses not incurred LI = Loss of Income

Full protection, however, is available for some losses. The commercial property insurance policy protecting most businesses can respond. For example, if fish die as the result of a fire to an insured hatchery building, a properly designed property insurance program should provide coverage.

Loss of business income or business interruption insurance is designed to pay for the lost profits and continuing expenses that result from damage to a covered building or other property loss. The damage must be to property covered by the policy and caused by a covered peril. Fish that are killed due to a fire may meet the necessary conditions. However, fish that die from a virus or deoxygenation would not qualify.

As a general rule, if there is damage to property (other than the fish) and the damage was caused by a peril covered by the commercial property insurance policy -- fire, lightning, windstorm, hail, vehicle, aircraft, vandalism, etc. -- then business interruption coverage (if purchased) will respond.

Calculate needs
In order to calculate the correct amount of coverage needed, a business owner must spend time with his financial records. The policy pays for the lost profits and expenses that continue after the business is damaged.

For example, business interruption insurance would reimburse a hatchery owner for the interest on loans, continuing payroll expenses, workers' compensation insurance, and the phone bill.

To accurately determine the amount of coverage needed, a "business interruption worksheet" must be completed. The insurance industry has developed this template to help take a business owner through the calculations necessary to estimate the exposure. A qualified insurance agent should be able to help with the task.

The business interruption coverage can also be designed to pay expenses the business incurs to bring the operation back up and running quickly. Examples of extra expenses include rent payments for alternate facilities, replacement equipment lease payments, and overtime payroll. Expenses to convert temporary quarters may also be included.