Offshore fish farming facilities and their challenges for marine insurers

Rapid Development of Offshore Fish Farming

Back in 2018, two highly valued offshore fish farming facilities were successfully delivered to Norway by Chinese shipyards. Since then, China has presented to the industry yet another 20 such units, all delivered in quick succession within a short three-year span.

Compared to commercial fish catching, these offshore fish farming facilities generally provided the global population with healthy, lean protein through sustainable methods.

Figure 1: "Deep Blue No. 1" (Image courtesy of Rizhao Wanzefeng Fishery). Dimension: 60 meters; Height: 70 meters(including the central column); Volume: 50,000 cubic meters; Designed production capacity: 1,500 tons fish.

According to the Food and Agriculture Organization ("FAO"), the world's fisheries production reached 166 metric tons in 2018, and it has been growing at a rate of 5.40% per year. Since then, 50% of the global production is derived by means of aquaculture, also known as aquafarming, with China dominating the output by as much as 50% and Indonesia, Northern European countries and Chile being other major contributors.

According to China's Ministry of Agriculture "National Marine Ranch Demonstration Zone Construction planning (2017-2025)", with the aim to preserve the ecological sustainability of the oceans, China has taken action to reduce the scale of commercial fishing, one of which is to develop 2700 km2 of national fish farming waters by 2025. This means several hundreds of offshore fish farming facilities could be anticipated along the Chinese coastline by this date. Construction of these offshore facilities will be beneficial for compensating and restoring diminishing ocean resources via a more sustainable method to feed the ever-growing population.

Design and structure technicalities, functionalities and operational hazards

A wide range of unique construction designs which concentrate on energy efficiency and decarbonization has been developed to advance deep-sea fish farming industry. Renewable energy (sun or wind) is now used to power these fishing facilities, which can be designed as simply as just one net-coated round box, or with more complexity by combining three such boxes together into a clover shape. Any given dimension can be as wide as up to 40 meters. The more complex the structure, the more risk factors insurers need to consider.

Another interesting and creative development in the sector is the combination of aquaculture production with the provision of leisure/entertainment activities through the addition of swimming pools, scuba diving facilities and hotels onto some of these offshore fish farming platforms. This is considerably cost-efficient, as compared to, say, what a yacht can provide.

Figure 2: "Genghai No.1" (Image courtesy of CIMC Raffles) is an aquaculture farm, ocean monitoring centre, as well as a leisure centre. It has aquaculture volume 27,000 cubic meter equivalent to 14 standard swimming pools, and it can accommodate 300 visitors at any given time.

Each offshore fish farming facility does bear high value, and its designed life span could last 25 years. Therefore, its targeted aquaculture products, such as large yellow croakers or salmon, would have to generate high economic value in a short period for quick investment returns, otherwise the facility would need additional functionalities such as leisure and entertainment activities as described earlier to bring in additional value.

Whilst creativity in combining aquaculture production with leisure activities on such a facility is applauded, the overall structural and operational complexity, as well as increased functionality, brings about more risk factors and warrants the need for more insurance coverage than traditionally so for a platform with solely fish farming activity. To illustrate this point, clients would expect to require coverage for passenger liabilities, and underwriters would raise concerns on the increased fire hazard brought about by additional ancillary activities.

Fish farming for high valued seafood products needs low water temperatures as far as 130 kilometers offshore and with depths up to 1,000 meters. At this distance from shore and at such depth, it is critical to ensure proper maneuverability of the anchorage system. Although the offshore fish farm facility is designed to be able to withstand 12 Beaufort scale wind force, the unit could be submerged a few meters below sea level to avoid exposure to strong waves and wind. The reliability of the automatic tightening and release operation of its anchorage system is vital to the safety of the entire facility, as is the comprehensive set of ballast and de-ballast system on board to adjust to the floating height should a strong storm pass through. An emergency plan in the event of failure of either system is imperative for the overall risk assessment of the facility.

Focusing on aquaculture operations, it is critical for farming enclosures to keep within the recommended water temperature range and the required oxygen content levels, and that automatic feeding is carried out at regular intervals. In addition, the water body therein needs to be kept clean of excrement. All this requires close supervision and monitoring the health of the fish stock which is paramount. A remotely operated underwater vehicle ("ROV") is generally used to monitor, and to send out an alarm as and when any abnormal conditions are detected. Automatic intervention equipment installed within the facility, or alternatively the crew onboard, can then take necessary actions.

Figure 3: Examples of supervision and automatic intervention equipment. (Image courtesy of Donghai Insurance and Shangdong Ocean Group).

Maintenance of the offshore fish farming facility is carried out by fishermen or marine engineers who would live onboard for months. Insurance would be required for the crew, protecting them against accidents and natural hazards beyond their control.

High-density aquaculture activities add to the pollution of our oceans. Concentrated nutrients poured into the sea can foster Coralline algae, which in large amounts would deplete the oxygen content in seawater.

A set of reliable cleaning systems, including a motor to turn the whole facility around to clean the net coat, is vital for the maintenance of good performance of the facility. Plastic and ocean pollution to the environment should be considered when a facility is designed.

At high seas, the fishing nets are particularly susceptible to wear and tear and damage from big fish, natural catastrophes or collision with other vessels. Once broken, loss of fish stocks would be unavoidable resulting in economic losses. Equipment to re-capture fish escapes is also necessary. Fishing nets, normally of high value, are vulnerable when compared with steel structures. Either the owner or insurer, whoever takes the risk, would need to consider the frequency of loss and its replacement cost.

CCS has set up technical standards and provided survey services

In addition to the requirements of the Offshore Fish Farming Facilities Guidelines published in August 2019 by the China Classification Society ("CCS"), offshore fish farming facilities also need to comply with other relevant CCS requirements, such as the Rules for Classification of Mobile Offshore Units & Offshore Floating Installation. These guidelines mainly focus on the conditions of the operating environment, strength and integrity of the structure and of the positioning and mooring system, hydrodynamic influence of fishing nets, and anti-corrosion requirements. Although the structural and operating standards of fish farming facilities are not as high as those of conventional offshore platforms, they do share some similarities. In 2020, China Maritime Safety Administration classified such structures as offshore facilities (including fixed and mobile units).

The establishment of these rules provide direction and set minimum technical standards and specifications for the design and construction of offshore fish farm facilities where safety is concerned.

Pursuant to the CCS Guidelines, offshore fish farming facilities can be categorized by their structures (i.e., column stabilized type, frame type, A-frame type and ship-shaped type). As for functionality, we can also split them into aquaculture production and leisure.

Insurers' Challenges and Actions

Insurers are increasingly curious about the potential of offshore fish farming facilities as a niche area for growth however, the industry is yet to come up with appropriate insurance solutions to provide comprehensive coverage needed to cover the risks of such operations (e.g.  hull, property, crew-related liabilities, aquaculture and pollution to environment etc.).  One such platform would need several insurance policies to ensure appropriate risk protection.

Considerations for an underwriter would include: Is the design and operation system environmental-friendly and safe? How can pollution risks arise and how adverse can they be and what is the extent of impact? How complex is the structure and how would it stand up to the climatic conditions where it operates? If leisure functionality is included, is insurance required towards passenger liabilities? With additional ancillary set-ups and activities, would there be an increase in the risk of fire? Generally, the less complexity in the structure and functionality, the better. Reliance is on class societies to impose the necessary risk management and loss of prevention measures to safeguard the interests of the owner, the operator and the insurer.

The complexity of the environment in which such facilities operate, the lack of readily available and accessible electricity to power the units, or the mechanical engineers to maintain the good condition and smooth operations of the facilities, do render this type of risk rather delicate. 

Although offshore fish farming facilities do go through the periodic condition surveys as do commercial vessels, the standards to which they are expected to adhere may not be as stringent and rigorous. Therefore, issues may not be identified in a timely manner and the condition of such units may not be maintained as well as would have been desired. The supervision system, the automatic equipment and the nets are fragile and are not able to stand the test of time as would the steel structure.

Crew onboard should be trained and qualified to operate the facility and equipment without incident and would need to make sure regular inspection and maintenance is carried out by relevant authorities.

Deductibles should reasonably be set at a level to avoid frequent attritional losses arising especially from fragile and highly sensitive equipment.

A third-party survey onboard the facility is recommended to review the breakdown of the classed equipment and the unclassed. The unclassed equipment shall be recommended by its life span and a proper maintenance plan if they would seek insurance coverage.

This poses a huge challenge for marine insurers to agree to the extension of coverage required to protect against fish health, escapes and mortality. These are out of scope for marine insurance, and to some extent even for aquaculture insurance due to the poor loss experience arising from such risks for the industry. Owners of these offshore fish farms might want to consider parametric solutions as an alternative to traditional insurance.

The towage or shipment of such a complex and heavy structure is also bringing great concerns in shifting or delivery from a shipyard. Sometimes it is shipped by a semi-submerged vessel for a long delivery voyage from Chinese shipyards to Norway. Qualified surveyors are required to do the loading calculation and supervising the loading and offloading process.

Risk aggregation is yet another concern whereby hundreds of such facilities may be exposed to one single typhoon event, as so is the risk of collision with traditional ships in passage. Underwriters need qualified third-party experts to conduct location surveys on hydrology, meteorological, anchorage and a navigable pass, to adequately understand such risk factors.

The development of offshore fish farming facilities requires clever design, operational standards, and risk management. Insurers are more concerned about the coverage that goes beyond mere property damage of these facilities, such as sustainability issues pertaining to the environment and the profitability of aquaculture. These concerns need to be addressed sooner rather than later and issues need to be resolved, to ensure insurance is viable for the continuing development of this niche sector of the food production industry. As the world continues to progress towards safer and more sustainable seafood production, governments are eager to promote offshore fish farming to alleviate the pressure on overfished wild species.