Building upon our previous work to understand if and how innovative insurance policies can be designed to mitigate risk in fisheries, we seek to investigate a suite of related topics that (1) address remaining questions about the feasibility of fisheries insurance and (2) provide insight into how financial tools in the ocean sector can be leveraged to motivate behavior changes that ultimately yield conservation outcomes.
Feasibility of Fisheries Insurance
Now that we have established that index-based insurance can be a viable tool to smooth and mitigate the risk posed by climate-driven variance in fisheries productivity, three key questions remain:
1. Which fisheries are the most insurable?
In our previous work, we determined which fishery characteristics increase or decrease their suitability for index insurance. These characteristics include biology (i.e., life history, growth rate), management (i.e., information availability, policy implementation) and environmental (i.e., correlation of environmental conditions to fisheries productivity) variables. Building on these results, we would evaluate these characteristics across many different fisheries (perhaps 100 or so) to determine those that are best suited for this insurance mechanism.
2. What index-based plans would insurance companies be willing to offer?
We theorized a hypothetical insurance contract for fishers in our previous study. This addresses the demand for insurance. But an important question remains: Would insurance companies be willing to provide index-based insurance to fishers? We propose investigating this supply-side problem through an evaluation of similar, existing insurance models (e.g., index-based insurance for agriculture) and the development of plausible index-based plans that would be appealing and effective for insurees and insurers. This will consider the risk profile of the portfolio of policies that would be held by the insurer.
3. How does the nature and distribution of the environmental shocks affect the insurability of fisheries?
A single environmental shock (e.g., an El Niño event) can suppress harvest for multiple years as the stock recovers, and our current index insurance design is not adept enough at smoothing fishers’ utility in response to lingering shock effects. This differs from an acute shock (e.g., a harmful algal bloom), from which a fishery can resume business as usual within weeks. Different shocks also have different frequency distributions, which may affect the risk profile of different portfolios, and different functional linkages to productivity. For example, the strength of an El Niño event may scale relatively linearly with the resulting changes in productivity, whereas other shocks (e.g., harmful algal blooms) may have threshold effects with no consequences up to a certain event magnitude and complete fishery closure after crossing a threshold. We seek to understand the functional mechanisms behind these stock responses to design an index insurance plan that is robust to myriad environmental shocks.