Designing innovative financial tools for resilient fisheries

About

Environmental factors, such as ocean temperature, have a strong bearing on fisheries productivity, and climate change is amplifying uncertainty in the fishing industry through these factors. Inter-annual variability in harvest is increasing, and this in turn is driving greater fluctuations in economic returns for stakeholders throughout the fisheries supply chain, including fishers, processors, and investors. This increase in uncertainty and variability in profits also increases the economic risk of participating in the fishing industry. 

Building upon our previous work to understand if and how innovative risk financing mechanisms can be designed to mitigate this increased risk in fisheries, we investigate lingering questions about the feasibility of fisheries insurance and, in addition, provide insight into how financial tools in the ocean sector can be leveraged to motivate positive behavior changes that ultimately yield conservation outcomes.

Approach

In our previous work, we synthesized information on the breadth of risks facing fishers and fisheries and gleaned insights from the application of risk-smoothing tools in other natural resource sectors. Index-based insurance (i.e. insurance payouts based on environmental conditions or an predetermined “index”) emerged as a promising option so we developed a model to determine the applicability of index insurance in the fisheries sector. Finding potential for index insurance for fisheries, we undertook a deeper dive into the feasibility of using insurance to mitigate risk in fisheries.

In the next phase of this project, we identified and analyzed fisheries-specific factors that affect insurance viability where the willingness of insurers to supply the product and the willingness of fishers to buy the product dictate what this guide terms “viability” of the insurance product. For each fishery-specific factor, we investigated how the factor might affect insurance viability through impacts on supply and/or demand. Through this, we also examined which fisheries are most insurable and why. 

Underlying all of this work is human behavior and the role of incentives. At the root of most environmental problems is the issue of misaligned incentives: “bad actors” are not appropriately incentivized to avoid behavior that causes environmental harm. In a parallel track, we are aiming to understand how financial tools can be leveraged to motivate positive behavior change and ultimately yield conservation outcomes. For this, we are developing a model to explore if insurance alters fishers’ and fisheries managers’ behaviors and, if so, if index insurance can be used to catalyze conservation outcomes.