Illegal, unregulated and unreported fishing

• Illegal, unregulated and unreported (IUU) fishing accelerates the fish stocks depletion process, outcompetes legal fishermen and undermines protection and recovery measures of the marine ecosystems.
• Industrial insurers joined forces to raise awareness about the negative impacts from the IUU practices as well as to promote extra due-diligence in underwriting in order to prevent exposure with IUU practices.

The importance of marine ecosystems is hard to question. Not only are they acting as a major carbon sink and heat regulator, they also provide livelihoods and nourishment for more than 3 bn people.  Ocean-related products contribute about $3 tn to the global economy each year. This risk briefing aims to shed light on the causes and methods of illegal, unregulated and unreported (IUU)  fishing, its link to the marine insurance sector and how industrial insurers, such as AGCS, can help tackle the problem.

However, the oceans experience a crisis: warming, acidification, oxygen depletion, micro-plastic pollution, spills and sea levels are rising in almost all ocean basins. Experts consider living marine resources extraction and destruction of coastal areas as the largest ocean-related risks for humankind. Coral reefs are among the most diverse and valuable ecosystems but more than 75% of all  tropical reefs experienced bleaching-level heat stress in recent years, and at nearly 30% of reefs, it even reached mortality level. The death of coral reefs entails the loss of nurseries site for one quarter of all ocean´s fish, additionally to fishing practices that are exploiting stocks to about 93%. The Census of Marine Life concluded in 2010 that 90% of large fish are gone, primarily because of overfishing. As a consequence, humankind faces serious economic and social problems since fishing provides employment to 60 million people worldwide, including 84% in Asia. Moreover, in several developing countries, fish can account for over 50% of animal protein consumption and thereby is crucial for the local food security.

In addition to legal fishing which is regulated, IUU fishing threatens the survival of the sector by accelerating the stocks depletion process, outcompeting legal fishermen and undermining protection and recovery measures. According to a report published by the United Nations in 2016, illicit fishing is responsible for about the same amount of global harvest as would be gained by ending overfishing and rebuilding fish stocks.

On one hand, the United Nations Sustainable Development Goal number 14 relates specifically to the oceans and i.a. explicitly targets overfishing and IUU fishing as. On the other, the UN Environment’s Principles for Sustainable Insurance (PSI) aims to embed environmental, social and governance issues relevant to insurance business in the insurance decision-making processes. The engagement of these both supranational initiatives makes it plain that industrial insurers have to deal with IUU fishing as soon as possible.

Illegal fishing is an unresolved and internationally pervasive problem which occurs both on the high seas and in areas within national jurisdiction. It concerns all aspects and stages of the capture and utilization of fish and its associated problems (e.g. overfishing, catching and retaining non-permitted species or species over or under a permitted size limit, use of banned gear, fishing in a closed area, fishing during closed season).  Not only the vessels that directly participate in illicit fishing are included but also those that support the practice such as refrigerated transport vessels and supply ships.

Due to this complexity and variety of aspects, the Food and Agriculture Organization of the United Nations (FAO) defined three categories namely, illegal, unreported and unregulated (IUU) fishing:

Illegal fishing relates to vessels in waters under the jurisdiction of a State, without permission of that State, or in contravention of its laws and regulations. Vessels flying the flag of States that are parties to a relevant regional fisheries management organization but operate in contravention of the conservation and management measures adopted by that organization and by which the States are bound.

Unreported fishing refers to fishing which have not been reported at all or misreported, to the relevant national authority or to the regional fisheries management organization (if in their area of competence).

Unregulated fishing corresponds to in areas or for fish stocks in relation to which there are no applicable conservation or management measures and where such fishing activities are conducted in a manner inconsistent with State responsibilities for the conservation of living marine resources under international law.

In many maritime regions of the world, IUU fishing has massively contributed to the depletion of fish stocks, especially in developing countries’ coastal waters. For example, off the coast of West Africa it accounts for an estimated 40% of all fish caught and thereby causes revenue losses of around $1.3 bn every year.

IUU fishing is not only fatal for the survival of fish species but also harms many lower income coastal communities and law-abiding fishers that suffer reduced fishing opportunities. Additionally, it is also often associated with corruption, human rights and labor abuses, both on fishing vessels and in the supply chain.

There are many reasons why people started to engage in IUU fishing, one of them being that it is very profitable (approx. $10-24 bn annually), hard to combat and even fostered by several factors:

1. Fishing overcapacity: current marine catch could be achieved with approximately half of the current global fishing fleet. Quotas are falling, but not the capacity of ships.
2. Lack of regulation in certain sea areas. Beyond the 200 nautical miles of coastal states, the ocean becomes a common heritage whose management does not depend on any specific responsibility.
3. Little surveillance, limited sanctions, corruption of administrations, weak governance of certain states with, in addition, the inadequate or ineffective enforcement of national and international regulations in areas where there is no law.
4. Certain tax mechanisms (tax havens, etc.) also create a breeding ground for illegal operators. For example, the practice of using a flag of convenience (FOC) relies on fishermen not registering their vessels in the shipping company’s home state but operate their vessels under the flag of another state with less stringent regulations or ineffective control.
5. Distorted subsidy schemes: Capture fisheries already stagnated in the early 1990s which is why many governments have implemented subsidy schemes to protect local fish supplies and employment in the sector.
6. Set up of fisheries control structures are costly and complex, many developing countries are not able to provide them.
7. False estimation of stock sizes by states and/or fisheries management organizations. Based on the assumption that less fish is being caught than is in fact the case, experts overestimate the size of the stock and set the following year’s catch quotas too high, potentially entrenching and accelerating the overexploitation of the stock.

In general, IUU fishing is mainly practiced in countries in which it can done virtually with impunity as in the coastal waters of many developing countries, or within internationally shared high seas waters. After West Africa, the Western Central Pacific Ocean is the region with the highest rate of IUU fishing worldwide (34% of the total catch). The Arafura Sea, which lies between Australia and Indonesia, is also very severely affected. A similar situation exists in the Northwest Pacific Ocean, especially in the West Bering Sea. Here, IUU fishing is mainly practiced by China and Russia and amounts to 33% of the catch. Fishermen engaged in IUU fishing tend to target species which are already overexploited by legal fishing or which are subject to restrictions for fisheries management purposes (e.g. high-value species such as cod, salmon, trout, lobster and prawns).  

Illicit fishing operations rely on a range of tactics and loopholes in international law to get their products to market. Ports known for lax enforcement or limited inspection capacity are a prime pathway for unethical fishermen and companies to move their catch from ship to market. The destinations of these illicitly caught fish are often the largest seafood import countries, namely the US, Japan and the EU. Studies suggest that up to one third of wild caught seafood imported into the US comes from IUU vessels.

MCS stands for “Monitoring, Control, and Surveillance”, and it refers to the suite of mechanisms and activities used to monitor and regulate fishing. The focus in modern fisheries management is mainly on economic control through the control of fishing capacity, fishing effort and the allocation of catch quotas and temporal/spatial access to resources. Monitoring is taking place through the use of vessel monitoring systems (VMS), observer programs, catch documentation schemes and inspections of vessels in port and at sea.

Several activities to minimize and eliminate IUU fishing are taken on many different organizational levels. Two examples are the voluntary FAO Agreement on Port State Measures to Prevent, Deter and Eliminate IUU Fishing (PSMA) and the equally named binding EU Regulation which entered into force in 2010 and entails that:

• Only marine fisheries products validated as legal by the competent flag state or exporting state can be imported to or exported from the EU
• IUU vessel list and countries list that turn a blind eye to illegal fishing activities have no market access
• European rogue operators are penalized proportionate to the economic value of their catch

In 2016, the US government officially established the Seafood Import Monitoring Program to address IUU fishing products entering the market. They use a list of species which are identified as vulnerable to illegal fishing and fraud. Imports of these products must have traceability systems in place to document and track the legal origin of the seafood from catch to first point of sale in the US.

Regional fishery management organizations (RFMO) also engage in finding solutions to end IUU fishing. They use blacklists which include details of vessels which at some point have attempted to land IUU fish at an RFMO port. This “name and shame” policy makes it more difficult for IUU vessels to find ports where they can land their catches.

Several NGOs, have also uncove­red valuable information, providing assistance towards arrests and raising general awareness about IUU fishing. One is the Global Fishing Watch, which identifies fishing boats by analyzing Automatic Identification Signals (AIS, transponder that must be carried by all big boats) and then combining AIS data with other datasets and machine learning to monitor fishing and other activities. Technological progress also helps to develop more effective tools to combat IUU fishing. Ocean-going drones can cruise the ocean for a year at a time, offering a cost-effective solution for assessing fish stocks and patrolling remote areas.

Overall, more transparency and traceability is needed and demanded by consumers and government agencies to eliminate IUU fishing. This requires strong public-private collaboration.

A case published by the sea conservation group Oceana provides an example of the links between IUU fishing and insurance: In April of 2015, the Thunder, a trawler well known to Interpol and enforcement agencies around the world, famously and bizarrely sunk off the coast of São Tomé after being chased for 110 days by vessels operated by the Sea Shepherd Conservation Society. Following the sinking incident, the owner of the Thunder also reportedly tried to file an insurance claim.

Insuring vessels that participate in or support IUU fishing can expose insurers to several risks including an increased likelihood of claims, an increased possibility of association with other crimes, increased exposure to insurance fraud and legal liabilities as well as losses due to reputational damage by association.

The insurance industry is not the most visibly influential sector, but it is woven into the fabric of business worldwide from transportation and food to automotive and energy, and every industry in between. Property & Causality insurance plays an essential role in international commerce. Without insurance, fishing companies may face enormous financial losses should an accident occur.

To succeed in this sector, the industry has to look beyond today to the future, to identify the key risks and challenges of tomorrow and develop appropriate mitigation. The topic of IUU fishing is gaining momentum due to the far-reaching consequences and negative impact on the biodiversity and human well-being. Allianz Global Corporate & Specialty joined the Oceana initiative and implements solutions that can eliminate IUU fishing in our insurance portfolio as well as raise awareness about this issue. Risk management solutions and effective due-diligence procedures integrated in the relevant underwriting processes help to reduce the risk of insuring vessels or companies that are acting contrary to agreed international governance frameworks and international law covering IUU fishing.

The following link opens the “Guidelines to control or mitigate the risk of insuring vessels and companies associated with illegal, unreported and unregulated (IUU) fishing” by the Oceana initiative. It provides very useful recommendations for risk factors assessments, mitigation options and an “IUU fishing risk assessment checklist” which can be used by underwriters, risk managers, agents, brokers and other relevant parties within the marine insurance industry:

http://eu.oceana.org/sites/default/files/oceana-psi_insurance_insdustry_guidelines_for_iuu_fishing_final_with_doi.pdf

AGCS supports its clients to identify and assess material risks and develops recommendations on how to mitigate these risks. In a fast changing world, AGCS identifies emerging issues and develops risk management strategies.

Our consulting team is available at: AgcsSustainability@allianz.com

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