This study aims to investigate the performance and problems of crop insurance and to suggest the tasks in order to stabilize and expand the crop insurance as a farming stabilization policy system.
We used several methods for this study such as literature review, the survey for other countries' experience, the analysis of statistical data, and interviews of farmers. This study is differentiated from previous studies in terms of actual data used. They are collected 2001 crop year to 2009 crop year.
Crop insurance was started at 2001 for apple and pear in Korea. After that time, various crops were included. Twenty five crops, nationwide or particular areas, are insured in 2010. Korean government has a schedule to extend over 30 crops after 2011.
The insured were 8,055 in 2001 and have significantly increased to 32,966 in 2009. But most of farmers insured were apple and pear growers. The coverage options are 70% or 80%. Most farmers select 80%. It turns out that farmers prefer wider coverage although the burden of premium that they have to pay was heavier. There is statistically significant difference in the results of loss assessment between agencies. It is necessary to adopt several measures for proper assessment. The premium rates(standard rate) are calculated by the basis of each county level. Based on the historical record of losses, individual premium rate are decided to add or discount extra rates. With a relation between premium rate and loss ratio, the grape farmers with high risk bought crop insurance, but the grape farmers with low risk didn't buy crop insurance. So, the premium rates for grape seemed to increase continuously.
During nine years, about 52 thousand farmers had received 297.2 billion won. We analyse the effect of crop insurance in stabilizing farm management. The result shows that crop insurance has contributed to the stabilization of farm management because the maximum variation of the insured farmers' revenue is 606 thousand won per 10a comparing to one of non-insured farmers', 806 thousand won. Also, it is true that there are adverse selection and moral hazard.
The result of interview describes that farmers request the extension and diversification of insuring natural disasters.
USA, Japan and Canada have been implementing agricultural insurance during about 70 years. They have provided various crops and programs and researched many alternatives in order to help the farm stabilization. Nowadays, they tend to expand revenue assurance programs concerning the farm level stabilization rather than the individual crop.
The introduction of the crop insurance system affects korean agricultural policy. But there exist many problems because crop insurance has expanded in too short period. Accordingly, there are several tasks enabling crop insurance to become a useful tool for farm management. First, The government and NACF have to provide the extension service on crop insurance for farmers continuously. Second, more natural disasters must be insured. Third, it is important to make an effort to improve proper loss assessment. Forth, it is useful that farmers are forced to insure all the acreage for the same crops in order to increase the effect of risk allocation and reduce moral hazard problem. Fifth, the redundant program should be eliminated in farm stabilization policy. Sixth, it needs to review the feasibility of revenue assurance alternatives. Seventh, more research related to crop insurance is helpful.

Researchers: Kyeong-Hwan Choi, Gwang-seok Chae, Byeong-Seok Yoon
Research Period: 2010. 1 ~ 2010. 10.
E-mail Address: kyeong@krei.re.kr; gschae@krei.re.kr; dd329@krei.re.kr