To enable an underwriter to accurately assess the risks of a farming operation, the following are required:
1. Proposal Form
A fully completed and signed proposal form will be needed (there are separate forms for offshore and onshore operations). The information contained within the proposal form will provide underwriters with details of the applicants farming ability, experience and what monitoring and controls are in place on which to base their risk assessment on. The more information and detail that can be supplied the better; please note index coverage has the shortest proposal form, while “all risk” wording requires the most extensive. This is due to the scope of coverage and the assumed risk by the insurer.
It should be remembered that the applicant is in effect asking insurers to accept their production risk, and insurers will be assessing how much premium to charge to transfer this risk. Most underwriters have significant experience in assessing aquaculture risks, and some have come from the aquaculture industry so are generally knowledgeable about most species and systems in use.
Please note this information will be part of a legally binding submission to insurers, and as such the accuracy and truthfulness of the information supplied is critical. Any incorrect or fraudulent information may prejudice a claim in the event of a loss.
Changes to the risk
Should there be significant and material changes to the operation (and therefore the risk) during the period of the policy then this should be declared to underwriters. Failure to do so may prejudice a claim following a. If in doubt, declare any changes to us for consideration
The deductible is the amount of the risk that the policy holder retains for each and every loss. Deductibles tend to be a percentage of the sum insured, rather than a fixed amount (excess). Excesses are very rarely used in biomass policies due to the variation in exposure across the policy period.
Due to the high risk nature of aquaculture, deductibles tend to be high when compared to less risky classes of insurance. Typically these tend to be applied on a site basis, but deductibles per unit, per group, or even per cage or tank are possible. Lower deductibles however come at higher premium cost as insurers are much closer to the risk of paying a claim, therefore charging more premium to transfer the risk.
3. Stock Projection
Stock projections detail how much stock will be on site during the policy period and should be calculated as a function of biomass (usually kg’s or numbers) and the basis of indemnity (valuation). Stock should be detailed on a monthly basis.
Having stock projections for the period of the policy is essential in determining an insurer’s financial exposure, and is used to calculate the premium charged. Most operations will have stock information in one form or another as part of their stocking plan, but we can help assemble this information with you as well.
During the policy stock declarations will need to be sent in each month to monitor the sums insured on site and to make sure that sufficient cover is in place to protect the policyholder.
Sums insured and valuation of stock
Sums insured will be determined by the stock projection and basis of indemnity.
The basis of indemnity is the value you would like to be indemnified (paid) following a recoverable loss (after the application of the deductible). Values should be based on costs of production and not sale price. Many policies have a provision within them to replace the fish with the same or similar stock, so if values are inflated you may find that you will be charged more premium than necessary, with underwriters simply replacing lost stock.
Basis of indemnity can be a value per kg (weight), a price per fish (or unit) or a mixture of the two (for example a fixed price per fish, to cover purchase price, plus a value per kg to reflect input costs over time).
Sums insured can be adjusted up or down during the policy period with agreement from insurers, which might result in additional premium, or a return of premium (depending on the minimum premium charged on the policy).
All stock on site needs to be insured. Under insurance will lead to the application of average in the event of a claim if stock cannot be identified as insured.
Natural mortality rate
Any farming system will have natural mortality. The natural mortality rate declared in the proposal form will have an impact on any loss adjustment, as these will be removed from any claim payment.
4. Rates and Premium
Premiums are generally calculated on applying the insurance rate to the average sum insured on the policy, with insurers aiming to charge a fair premium for their exposure. The average biomass value is used to avoid any large premium adjustments at the end of a policy.
It is recognised that cash flow can be a problem for companies involved in primary food production, with money often only becoming available when product is sold. As a consequence insurers are willing to offer premium instalments, however this results in them carrying a credit risk in doing so. Insurers will sometimes consider premium discounts, or may amend the policy in other ways, to favour policy holders paying premiums up front.
Premium instalments also come with increased risks to the policy holder, as most insurance policies have warranties in them that could result in a claim being prejudiced if premium payments are not paid on time. In extreme cases cover automatically lapses for non-payment of premium, so a policy holder’s ability to pay the correct premium on a given date is crucial.
5. Pre-risk surveys
Increasingly pre-risk surveys are being used to confirm the quality of an operation before committing to an insurance policy. If the operation is unknown to insurers then it may be that a pre-risk survey will be required before quoting.
The cost of any survey will usually be paid for by the applicant in the first instance, with the cost discounted from the premium if a policy is taken out.