Insurance for high risk commodities
The shrimp industry is associated with very large risks due to shrimps' unique characteristics. Unlike fish, shrimps are territorial, which makes it hard to grow them in a pond. In addition, in the case of a disease event, the lack of an immune system in these creatures makes the use of antibiotics almost impossible. In this project, we studied the feasibility of introducing insurance contracts on shrimp losses using production data from a number of shrimp farming countries. This is the first of a kind analysis that uses actuarial techniques to provide educational knowledge on shrimp insurances.
We conducted a comperehensive risk analysis using shrimp production data in 26 countries/regions in the world. We faced huge data inhomogeneity in a rather small data set, and thus we chose to base our analysis on risk management by model uncertainty. We found the premium rate for the whole coverage. This shows the extent to which a risk manager should consider the loss of the shrimp product. As expected, the premium rate turns to be high, at least as high as the heuristic estimations in more developed countries. In the second part of the analysis, we designed two types of insurance: one with a deductible only and the other with a stop-loss policy to prevent the risk of moral hazard. We developed a methodology to find the premium rate for a range of risk aversion rates.
