Resilience through risk management: cooperative insurance in small-holder aquaculture systems

Aquaculture is a booming industry. It currently supplies almost half of all fish and shellfish eaten today, and it continues to grow faster than any other food production sector. But it is immature relative to terrestrial crop and livestock sectors, and as a consequence it lags behind in terms of the use of aquaculture specific financial risk management tools. In particular, the use of insurance instruments to manage weather related losses is little used. In the aquaculture industry there is a need for new insurance products that achieve both financial gains, in terms of reduced production and revenue risk, and environmental wins, in terms of incentivizing improved management practices. Here, we have developed a cooperative form of indemnity insurance for application to small-holder aquaculture communities in developing nations. We use and advance the theory of risk pools, applying it to an aquaculture community in Myanmar, using empirical data recently collected from a comprehensive farm survey. These data were used to parameterize numerical simulations of this aquaculture system with and without a risk pool. Results highlight the benefits and costs of a risk pool, for various combinations of key parameters. This information reveals a path forward for creating new risk management products for aquaculturalists around the world.