Risk-sharing in the context of fishery mutual insurance: Learning from China

Abstract

Although China remains the largest producer in the fishery industry worldwide, it faces substantial personal injuries and economic losses created by this sector. Considering insurance is a mechanism that potentially could deal with fishery-related losses, China set up private fishery insurance in the 1980s, but it largely failed in the 1990s. Over the past twenty-six years, China has developed an alternative financial mechanism, called fishery mutual insurance (FMI) to spread out risks, among which a large number of members are individual fishermen and owners of small-scale fishing vessels. Since 2008, there has been increasing financial support for FMI provided by the government. Guided by non-profitable FMI associations, FMI becomes a model of sharing risks among fishermen that create risks, which is substantially more like a risk-sharing agreement than a form of insurance. The paper analyzes the potential of this risk-sharing agreement in minimizing the total social costs of fishery-related activities in comparison to private insurance. Special interest is also given to identifying the problems that will constrain the promotion of FMI in the context of China.