Stoneham, Gary; Hester, Susan M; Li, Johnny Siu-Hang; Zhou, Rui; Chaudhry, Atibhav

Author(s)

Stoneham, Gary

Hester, Susan M

Li, Johnny Siu-Hang

Zhou, Rui

Chaudhry, Atibhav

Publication Date

2021-08

Abstract

Imported goods create value in destination countries but also create biosecurity risk. Although widely used in other domains of the economy, risk markets have not been created to manage losses that occur when exotic pests and diseases are introduced with traded goods. In this article we show that not all biosecurity risks are insurable. Losses arising from effort needed to detect and respond to exotic pests and diseases that breach national borders appear to be insurable because entry of these threats and consequent response costs, can be regarded as random events. As pests and diseases establish and spread, however, loss of access to export markets and productivity losses display systematic risk and appear to be uninsurable. Other insurability criteria support this definition of the boundary of biosecurity risk markets. We use the Australian biosecurity system as an example, although the framework described in this study will be applicable to biosecurity systems worldwide. We argue that biosecurity risk insurance could be incorporated into the current biosecurity system but would require legislation mandating importers to purchase insurance. Advantages of actuarial pricing of biosecurity risk are: (i) an increase in economic efficiency to the extent that importers respond to the price of biosecurity risk; (ii) financial sustainability would improve because actuarial pricing creates a structural link between funds available for biosecurity activities and risk exposure; and (iii) equity issues evident in the current biosecurity system could be addressed because risk creators (importers) would fund response activities through the purchase of insurance.

Citation

Risk Analysis, 41(8), p. 1447-1462

ISSN

1539-6924

0272-4332

Pubmed ID

33124753

Link

https://hdl.handle.net/1959.11/29793

Publisher

Wiley-Blackwell Publishing, Inc

Rights

Attribution-NonCommercial 4.0 International

Title

The Boundary of the Market for Biosecurity Risk

Type of document

Journal Article

Entity Type

Publication

Author(s)	Stoneham, Gary Hester, Susan M Li, Johnny Siu-Hang Zhou, Rui Chaudhry, Atibhav
Publication Date	2021-08
Abstract	Imported goods create value in destination countries but also create biosecurity risk. Although widely used in other domains of the economy, risk markets have not been created to manage losses that occur when exotic pests and diseases are introduced with traded goods. In this article we show that not all biosecurity risks are insurable. Losses arising from effort needed to detect and respond to exotic pests and diseases that breach national borders appear to be insurable because <i>entry</i> of these threats and consequent response costs, can be regarded as random events. As pests and diseases <i>establish</i> and <i>spread</i>, however, loss of access to export markets and productivity losses display systematic risk and appear to be uninsurable. Other insurability criteria support this definition of the boundary of biosecurity risk markets.<br/>We use the Australian biosecurity system as an example, although the framework described in this study will be applicable to biosecurity systems worldwide. We argue that biosecurity risk insurance could be incorporated into the current biosecurity system but would require legislation mandating importers to purchase insurance. Advantages of actuarial pricing of biosecurity risk are: (i) an increase in economic efficiency to the extent that importers respond to the price of biosecurity risk; (ii) financial sustainability would improve because actuarial pricing creates a structural link between funds available for biosecurity activities and risk exposure; and (iii) equity issues evident in the current biosecurity system could be addressed because risk creators (importers) would fund response activities through the purchase of insurance.
Citation	Risk Analysis, 41(8), p. 1447-1462
ISSN	1539-6924 0272-4332
Pubmed ID	33124753
Link	https://hdl.handle.net/1959.11/29793
Publisher	Wiley-Blackwell Publishing, Inc
Rights	Attribution-NonCommercial 4.0 International
Title	The Boundary of the Market for Biosecurity Risk
Type of document	Journal Article
Entity Type	Publication

The Boundary of the Market for Biosecurity Risk

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