After trawling the world for business opportunities, Royal & SunAlliance caught on to the global potential of fish farms. Mark Geoghegan reports
The world is your oyster.
The world is running out of fish - while the edible fishery supply has stabilised at 80 million tonnes a year, world demand for seafood is projected to be between 110 million to 120 million tonnes by 2010. Given the long-term stagnation in traditional global fisheries on the high seas, the business of fish farming, or aquaculture, is set to continue its growth across the world for the foreseeable future to fill the gap in demand. The current projection is for world production to be 39 million tonnes by 2010. Worldwide, the sector has increased at an average compound rate of 9.2% a year since 1970.
So from Chile to Canada, Scotland to South-east Asia, aquaculture is a booming business that is growing in importance and sophistication. What is more, farmed fish and seafood products can help unlock additional value because they offer continuity of supply of product of a consistently high quality. This can allow for professional marketing campaigns to be planned and new consumer markets to be developed, hence lifting sales overall.
Large-scale aquaculture is a relatively recent development but small-scale fish farming has existed since ancient times, with the oldest form of the industry - oyster farming - practised in antiquity by the Romans and Greeks as well as on the opposite side of the world in ancient Japan.
In contrast to terrestrial farming systems, where the bulk of production is based on a limited number of animal and plant species, more than 210 different farmed aquatic species were reportedly cultivated back in 2000. And what is the top crop? In monetary terms it is the world's fondness for tiger prawns that push this particular fruit de mere to be the biggest fish in the aquacultural pond. In 2000 we collectively pulled the heads and shells off almost $4bn (£2.2) worth. In fact, in the same year the sales of the top 10 species - including oysters, salmon and carp - amounted to $23.6bn.
So this is a global growth story but it is one that presents the insurance industry with an interesting set of insurance challenges. Enter Royal & SunAlliance and its aim to win a significant share of this tasty growth prospect.
Support at both ends
The team at R&SA quickly realised that to make significant inroads into what is a highly specialised market it would have to bring together support at both the front and back ends. The front-end expertise came from Aquarius Insurance Services, a specialist provider that has dealt exclusively in aquaculture business for the past 25 years.
Aquarius is the outward facing channel of the business, bringing risk assessment and aggregation control to R&SA's underwriters. The company's close affinity with this highly specialised niche area also meant it was key in the marketing of the product worldwide and the bringing on of new business leads. Meanwhile, at the back-end, the team gained the dedicated support of Munich Re, which has a long track record in supporting the underwriting of fish farms.
To help manage the global nature of the business, the team set about creating a functional working communications platform, which went as far as producing a dedicated web-based collaborative workspace. The system allowed the team to share critical risk information in real time, generating speedy analysis and rating.
In terms of the coverage available, one of the advantages a large composite like R&SA brought was the ability to create an attractive package of covers to fulfil all the customer's needs in a one-stop shop.
Customers for Aquaculture Insurance Solutions are offered a package that is far wider than mere stock mortality - hull extensions are available to cover support vessels and there is the possibility of contracting cargo cover, including live transits. The product clearly speaks fish, offering a veritable bouillabaisse of bespoke coverage options to clients.
Of course, the stock coverage is the main attraction for the policyholder and the one that requires the most expertise to get right. A successful underwriter in this sphere needs to keep a lookout for the myriad potential threats to the wellbeing of the insurable interest. Pollution incidents, storm damage, electrical damage, frost, disease and even theft or attack by predators can all have the potential to produce large losses and hole the account below the waterline.
The success of the scheme speaks for itself - the new business strike rate is in excess of 30% with business now being written in more than 10 countries across five continents. As well as geographical spread, the venture has also managed to produce a wide spread of exposures in terms of different fish species.
And with the acquisition of Chile's leading general insurer, Cruz De Sur, coincidentally home of the world's largest aquacultural industry, this international success story looks set to continue for the foreseeable future.
Sponsored by Kennedys
- Chubb Insurance Co of Europe
- Royal & SunAlliance - Aquaculture Insurance Solutions
- William Russell
Jubilation abounds for the marine team of Royal & SunAlliance for conquering the many challenges of developing a new venture and partnership, according to director Barry McConway.
Given the extremely damp nature of the business that he deals with, it was somewhat ironic that strains of the theme music from Lawrence of Arabia accompanied Barry McConway, director, marine, Royal & SunAlliance as he arrived on stage to pick up the award.
Speaking afterwards, Mr McConway was understandably jubilant at having won the award and expressed his satisfaction. After showing off the trophy to his team members in their box, he said: "This really is an excellent achievement for the team, reflecting everyone's hard work and effort. It is a genuine recognition of the quality of the partnership approach we have developed with Aquarius Insurance Services and Munich Re. It also demonstrates our ability to develop new initiatives, adding to and supporting our strong marine business proposition."
According to Mr Conway, getting the project off the ground, so to speak, involved about three to four months of preparation and research, followed by another three months of hard work to launch it.
When describing the challenges the team had faced, Mr Conway said that the main issues involved having to really think outside the box and concentrate on the issues of a new venture, such as ensuring the right level of expertise and knowledge. He said it was part of addressing these issues that led to the successful partnership with Aquarius Insurance Services and Munich Re.
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