Global reinsurance firm Swiss Re, with the assistance of local specialist insurer Taiwan Fire & Marine Insurance, has developed the first parametric aquaculture insurance solution covering fish farmers in Taiwan against extreme rainfall.
The parametric insurance product will cover 120,000 hectares of grouper onshore fish ponds in Ping Tung County, Taiwan against losses caused by the occurrence of extreme rainfall totalling more than 480 mm in two consecutive days, backed by Swiss Re’s reinsurance capital.
It effectively transfers the risk associated with extreme levels of rainfall, including typhoon-related rainfall, to the insurance markets, paying out when rainfall levels reach the trigger point. This protects the grouper fish farmers against flash flooding, which can cause their ponds to overflow, resulting in a loss of fish stock.
It’s the first such parametric insurance solution to be designed in Taiwan, utilising meteorological data on rainfall totals to provide a quicker payout. The use of the parametric trigger will reduce the time required to settle claims and negate the need for a claims process to quantify the actual loss incurred by the fish farmers.
“Unlike traditional insurance which pays after the fish farmers make a claim by quantifying the losses they have incurred from the heavy rainfall and flooding, this insurance payout is based on a defined trigger, in this case the amount of rainfall experienced. This means that fish farmers can receive their payout faster, reducing the time that is needed in claims process and settlement,” commented David Alexander, Head of Property & Casualty for Hong Kong and Taiwan at Swiss Re.
“When the warning signal of typhoon or rainfall is hoisted, fisheries can deploy means of risk prevention and mitigation actions, which would incur a cost. Fish farmers can now cover this cost through the aquaculture index-based insurance or use the payout to replace the damaged fish stocks. Through the mechanism of the parametric insurance, we want to build resilience for the local fisheries and close the protection gap of the aquaculture industry in Taiwan. We are proud to see that our first parametric aquaculture insurance solution has attracted strong interests, which we hope will benefit other countries within Asia in the near future,” added Harini Kannan, Head of Agriculture Reinsurance in Asia (ex-China) at Swiss Re.
Grouper is among the most expensive breeds of fish in the region and a high economic asset for the local aquaculture industry in Taiwan. This parametric insurance scheme will eventually cover 120,000 hectares of grouper fish farms, which between them produce 25 million kg of fishes annually in Taiwan annually for local consumption as well as export to Asian markets.
A typhoon in 2009 caused significant rainfall in the southern region of Taiwan, flooding fish farms and resulting in almost half of the fisheries sector being lost. This estimated loss from this single rainfall event was TWD 1.7 billion (US$ 56 million).
Once again, parametric triggers demonstrate their effectiveness at transferring extreme weather risks to the insurance or reinsurance market and provide a way for Swiss Re to acquire premiums in a region and industry where competition is lower, due to the required expertise to create such products and the local knowledge required to originate the opportunity.
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