Reinsurance giant Swiss Re has teamed up with Chinese firm China Pacific Insurance (CPI), to introduce a temperature-index insurance scheme to protect the $73 million hairy crab industry.
Swiss Re has been promoting the use of weather-index solutions in China for a few years now, as climate change and China’s growing aquaculture begin to have a more serious impact on the region. The hairy crab industry provides a livelihood to roughly 3,000 farmers, with Hong Kong citizens alone eating around 600,000 of the crustaceans each year.
The problem for the farmers is that climate change is creating hotter weather and hairy crabs die very easily in temperatures above 33 degrees (interestingly they can survive extremely cold conditions), an increasingly common heat for the areas where the crabs mature. In Jiangsu province, Shanghai, temperatures reached 40 degrees last year causing huge losses for farmers, as many of the crabs didn’t survive.
The new product introduced by Swiss Re and CPI uses a weather-index insurance policy with temperature experience as the trigger, meaning farmers receive payout when the temperature stays above 37.5 degrees for three consecutive days. Farmers will also be able to choose one-year, two-year or three-year coverage for the summer period.
Yuanyong Long, Swiss Re’s agricultural expert for China operations commented; “This product compensates the hairy crab farmers for the loss output due to persistent high temperature, measured by the weather data provided by meteorological stations.”
Currently it is solely hairy crabs that Swiss Re protects from weather in the region, but Long is hopeful that further weather-index insurance products will come to the market soon, he said; “With the increase in large-scale farming in China, weather exposure will become more concentrated, hence the demand for weather insurance will increase. By limiting weather exposure, farmers and agricultural firms can have better access to external financing.”