Return to warmwell.com

Emails received from Jim Webster July 8th 2010

On the web page you say

I have watched this for a number of years and talked to several agricultural and economic journalists who have talked quietly to the insurance companies and the problem is 'moral hazard' (a reasonable discussion on the topic at http://ingrimayne.com/econ/RiskExclusion/Risk.html )

Effectively with major animal disease there is very little the farmer can do to prevent it and the main driver is government and government policy.
So for example during the 2001 outbreak, a very large proportion of the cost was due to the disinfection afterwards - which was so utterly risk adverse and over the top (and should be compared with the equivilent process after 1967) that it cost a vast amount for no real benefit.

Hence in crude terms you are asking the insurance company to do one of two things

  1. insure against government incompetence (which is a certainty rather than a risk, so no one would take it on) or
  2. Run the risk of moral hazard, this being the fact that, taking fmd again, it is only government that can attempt to stop it at the frontiers.
    If government no longer has to bear the cost of the disease, it being borne by the insurance company and premium payers, what is there to ensure that government will take the political risk of upsetting voters by imposing on them New Zealand style frontier checks - or what is to stop them making a quick financial saving by cutting down what few checks we already have?

Thus and so, the insurance industry frankly doesn't want to get involved except under the same sort of system that occurs with terrorism insurance where again, Government is largely the only party that can effect the level of terrorism

I confess I'm not too up on terrorism insurance, however http://www.poolre.co.uk/Introduction.html

Effectively for livestock I suppose that the insurance companies would offer policies which they felt were viable. For example they might offer full cover for cattle killed due to fmd, but only up to the first £100 million, after that government would have to pay out.

They might also refuse to offer cover for consequential loss on the grounds this is something government can almost entirely control (costs of disinfection etc)

However I suspect that this would all be very much open to negotiation, for example the insurance companies might insist that as part of a deal certain steps were taken at the ports, or they might demand the right to stop offering the policies in event of a general election and a new government that changed policies.

Jim