Abstract
Mariculture is a well-known high-risk industry. However, mariculture insurance, which is an important risk management tool, is facing serious market failure. An important reason for this market failure lies in the unsound premium rate and pricing method. Due to a lack of long-term yield data, empirical rates are often adopted, but this adoption can lead to a high loss ratio. This paper provides an improved method for premium computation of mariculture insurance using an information diffusion model (IDM). An example of oyster insurance in China shows that, compared with the traditional pricing approach, the IDM can greatly improve the accuracy and stability of premium rate calculations, especially in cases of small samples.
Highlights
With the growing global population and rapid economic growth, the consumption of global fishery products has been increasing [1]
The purpose of this paper is to provide an improved method for premium computation of mariculture insurance using an information diffusion model (IDM)
Unsound premium rates and pricing methods are important reasons hindering the development of mariculture insurance
Summary
With the growing global population and rapid economic growth, the consumption of global fishery products has been increasing [1]. According to questionnaire surveys in Norway [5], Denmark [6], Vietnam [7, 8], Bangladesh [9], France [10] and Thailand [11], the risk factors of mariculture yield are very complex, including weather, pollution disease and so on. Tsunamis, red tides, temperatures, salinity, disease, pollution, and many other harmful factors can cause yield loss. Risk factors such as marine disasters are almost impossible to avoid. The complexity of risk factors makes it difficult for insurance companies to distinguish exactly how losses are caused. There is a lack of large reinsurance companies to cover risks [12]
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