Prevention of losses for hog farmers in China: insurance, on-farm biosecurity practices, and vaccination

Abstract

Using agricultural household survey data and claim records from insurers in China, this paper analyzes hog producers' choice of the ways to prevent possible losses and identifies the relationships among biosecurity practices, vaccination, and hog insurance. By combining one probit and two structural equations, we adopt three-stage estimations by a mixed-process model to obtain results. The findings indicate that biosecurity practices provide the basic infrastructure for operating pig farms and complement both the usage of quality vaccines and the uptake of hog insurance. In addition, there is a strong substitution relationship between the quality of vaccine and the demand for hog insurance. Hog farmers that implement better biosecurity practices are more likely to seek high-quality vaccines or buy into hog insurance schemes, but not both. For those households with hog insurance, better biosecurity status, better management practices, and higher-quality vaccines significantly help to reduce loss ratios. However, we also find a moral hazard effect in that higher premium expenditures by the insured households might induce larger loss ratios.

Keywords: Biosecurity; Hog insurance; Moral hazard; Risk management.