11 Sep 2019
Why Shrimp Farmers Can’t Get Crop Insurance
Written by Zach Stein

We have been talking with a lot of farmers and aquaculture insurance companies about why shrimp farmers cannot get crop insurance and what the impact of it is on their business. In this post we explore why this is and what the future might look like for the shrimp farming industry 

What Crop Insurance Would Look Like on a Shrimp Farm

Generally, aquaculture crop insurance exists to cover catastrophic disasters, such as extreme loss due to disease or natural event (flooding, tidal wave, earthquake, etc.). Policies tend to have very high deductibles in order to discourage farmers from using their insurance policies to pay for more minor losses caused by small disease outbreaks or sudden shifts in water quality, etc. 

So, if aquaculture crop insurance were to exist on shrimp farms, it would likely take this same form of covering the worst case scenarios, but leaving to the farmer to take care of the rest. There is also insurance to protect the physical infrastructure on a farm (buildings, machinery, etc.) but this is separate and beyond the scope of this post.  

If farmers had crop insurance, they would have the worst cases covered, meaning they could use their crop as collateral to get access to capital to invest in their farms and improve. 

Why Shrimp Farms Can’t Get Insurance

We’ve talked to a number of insurers and they aren’t ready to offer shrimp farmers insurance for the same reason: the risk is too high. The continued risk of disease is the biggest reason. Mexico notably offered a government backed insurance program to try and boost its farming production, but it went under when Whitespot hit unexpectedly across the region.

Additionally, the cost of underwriting is very high because farms, even those in the same region, can operate very differently from each other. Each can have a pretty different risk profile, so it is expensive and not clear to underwrite. 

What It Will Take for Shrimp Farmers to Get Insurance

If shrimp farmers can demonstrate excellent management practices, solid, historic actuarial data and technology in place to mitigate risk (such as automated water quality monitoring and risk prediction), then insurers will be much more likely to look at offering policies to shrimp farmers.  

Until that happens, it’s pretty unlikely that the vast majority of shrimp farms will have access to crop insurance, which will continue to hold them back from further investing in their farm to increase production and lower risk.