Risk analysis and insurance solutions for sustainable marine ranching in China

Marine ranching is the management of ecosystems that yield food and contribute to the restoration of marine biodiversity. It involves the cultivation and sustenance of marine species through aquatic breeding and farming of fish, for instance by releasing hatchery-raised juveniles or adults into natural habitats to restock supplies, and the creation of artificial reefs to boost population levels.

Marine ranching is central to the Chinese government's strategy for "Blue Granary" and green development. The number of marine ranch zones grew from 22 in 2015 to 189 by August 2024, covering a total sea area of 384 460 hectares.¹  It impacts the entire fishery value chain from breeding, cold chain logistics, processing of raw materials into higher value-add products, and even recreational tourism. An increasing integration of advanced technologies (eg, radar detection, ocean remote sensing, deep-sea communication and positioning systems) into marine ranching will boost the efficiency and productivity of fisheries. 

The are two main risk categories with respect to marine ranching: production risks, and market and social risks. Production risks further include extreme weather (such as typhoons and heavy rainfall) and other natural catastrophe events like storm surges and red tides.² Other production risks include disease, technical failures, equipment malfunction and human error in operations processes.

Production risks 

• Extreme weather events: of all meteorological hazards, typhoons pose the greatest risk to marine ranches. Cumulatively, typhoons and their associated floods accounted for 43% of the total aquatic product losses during 2003 to 2023.³
• Marine perils, including storm surges, sea waves,⁴ sea ice, tsunamis, and red and green tides.⁵ Algal bloom events often lead to mass mortality of and reduced quality of cultured species (eg, oysters, scallops, kelp). There were 223 marine peril events between 2014 and 2023, including storm surges and large waves, causing economic losses of 57.6 billion yuan (~USD 8.2 billion).⁶
• Disease risks: Aquatic plants and animals are susceptible death and disease, the latter arising mostly from biological (eg, pathogen transmission) and environmental (eg, pollution) risks. From 2021-2023, China’s aquaculture industry suffered billions of economic losses due to disease.[7]
• Tech risks: Inappropriate use technologies can cause aquaculture losses. Examples include the misuse of sector-related pharmaceuticals, poor water quality management, improper feed formulations, and excessive stocking.
• Equipment malfunction: Artificial reefs are susceptible to corrosion and cracking given their  prolonged immersion in seawater. Aquaculture facilities are exposed to structural defects, equipment failures, net fouling, where biofouling or mechanical abrasion reduces net strength, and structural damage, for example corrosion of the steel structures of offshore monitoring platforms.
• Human error: Factors can include negligence, inadequate training and knowledge, poor communication, non-compliance with procedures etc.

Market and social risks 

• Price volatility is the key market risk and can result from many factors including environmental conditions, disruptions to production cycles and supply chains, shifts in consumer preferences, and changes in trade policies.
• Policy risks, including regulatory changes at international, national and local levels. For example changes in marine resource management and ecological conservation requirements, farming permits, and trade-related regulations.

In our report, we analyze four insurance solutions for marine fishing: insurance for nature-based solution (NBS) projects, marine aquaculture insurance, offshore aqua property insurance, and offshore aqua liability insurance. Each solution covers different risks: natural perils are normally covered by all four solutions, while other risks can only be insured under selective scenarios and with tailored policies.

• Nature-based solutions (NBS): Most of the existing 26 marine NBS pilot insurance programs in China focus on mangroves and coastal salt wetlands. The coverage is primarily for damage to marine natural assets and related carbon sink loss caused by natural perils. The cover often comes with local government support. The maximum insured area is just 6.67 million square meters.⁸
• Marine aquaculture insurance: Of the 200 marine aquaculture insurance products available on the market, commercial insurance accounts for 38%. Weather-index products dominate (66%), followed by indemnity-based (23%) and then price-index products. Most premiums come from three major coastal provinces: Guangdong, Shandong and Liaoning.

Aquaculture has a track record of generating significant losses on a fairly consistent basis. Facing such high risks at sea, farmers seek insurance to protect their high value investment. We expect offering reasonable and fair Terms & Conditions to enhance the effectiveness and sustainability of insurance while encouraging policyholders to strengthen their risk management, based on best practices from other developed markets.

• Offshore aqua property insurance: This is insurance for offshore marine ranching facilities, such as column stabilized/semi-submersible aqua platforms, fishery aquaculture ships, and self-elevating aqua platforms. Many of these facilities have been developed over the last 10 years. They incorporate the risk characteristics associated with offshore energy units, fishing facilities and cargo vessels. This makes insuring aqua property facilities with standard property or marine insurance policies challenging.
• Offshore aqua liability insurance: These include safety production liability insurance, employer's liability insurance, offshore units protection and indemnity (P&I) insurance, and recreational fishing liability insurance. The unique risk characteristics of offshore aquaculture facilities require customization based on the specific production practices and technical parameters.

Loss prevention

Loss prevention practices in marine ranching are often underpinned by services provided by public bodies and commercial entities. For example, in Norway the aquaculture authorities supervise aquaculture production processes, including issuing aquaculture license permits, monitoring of stocks and enforcing disease control measures. These play a critical role in industry development and facilitate more accurate risk assessment. China’s approach is data- and technology-driven. Some insurers have built up digital data platforms for marine ranch insurance that integrate meteorological, environmental, satellite-remote sensing and sensor data from aquaculture platforms. The platform offers a full-cycle risk monitoring system that enables remote visual supervision, management of feeding times for fish, and early-warning alerts.

Outlook

China has established a multi-tiered insurance system for marine ranching centered on marine aquaculture insurance. Aquaculture equipment/facility insurance, employer's liability insurance, covers for natural-based solution projects and other risk transfer mechanisms serve as additional risk protection components. We forecast that marine aquaculture insurance premiums alone will grow to RMB 3.0 billion (USD 429 million) by 2030, up on average about 30% annually, driven by industry development, insurers' promotion and government subsidies. We expect that parametric insurance products, in particular weather index insurance, will play an increasing role in addressing marine ranching risks, with distinct advantages such as objective data sources, pre-defined triggers and rapid claims response.

The full report is available in Chinese only - download it below. A short English version can be found on sigma portal.