Research Reports
A Study on Developing Livestock Insurance Programs in Korea
-
AuthorSong, Jooho
-
Publication Date2006.03.01
-
Original
This study analyzes the current livestock insurance programs in Korea and suggests policy measures to reform the system. The pilot livestock insurance program was introduced in 1997 for cattle, and the coverage was extended to pig and poultry in 2002. The National Agricultural Cooperative Federation(NACF) is the only insurer participating in the livestock insurance program, and the government subsidizes farmers by paying 50 percent of the insurance premium. Even though the livestock insurance system was rapidly adopted within a relatively short period, the systems need to be improved to reduce more farm management risks.
In 2005, the livestock insurance program contract rates were 2.7% for Korean native cattle, 11.9% for milk cows, 57.6% for pigs, and 32.8% for poultry respectively. The main reasons of such low participation especially for cattle were 1) insufficient insurance coverage; 2) high premium rates; 3) the lack of competition in insurance marketing; and 4) the lack of legal support.
This study suggests many policy options to enhance the participation rates. Considering restricted government budget, policy options should be cost effective and consistent with other related policies. Some options can be implemented within a short period, while other options need substantial time before implementation. The following options suggested are those which can be adopted soon.
First, there is a need to allow commercial insurance companies to join the insurance program to encourage competition among insurers. But the participation of commercial insurance companies in the livestock insurance program has pros and cons. Therefore, it should be operated as a pilot program with only one commercial company allowed to participate for two to three years and then it needs to decide whether to extend the pilot program to include all commercial insurance companies, which want to participate in the program.
Second, the government needs to increase subsidy for cattle farmers to mitigate cattle farmers' insurance premium burden. Due to the budget constraint, the subsidy rates for pig farmers and poultry farmers could be lowered instead. Currently, the ratio of premium to income for cattle is 1.2～1.7 times higher than that for pig and poultry.
Third, the operating costs of livestock insurance program should be fully paid by the government. Currently, the government pays 50 percent of the operating costs and the remaining 50 percent should be paid by farmers as additional premium. But in other natural disaster- related insurance programs, such as Natural Disaster Insurance Program and Crop Insurance Program, the government pays full amount of operating costs. If the operating cost of livestock insurance is fully paid by the government, the insurance premium payable by farmers will be reduced by 15 percent.
Fourth, the coverage for poultry should be extended to include some diseases and snow damage. Because these coverages need higher premium rates, it can be sold to the farmers who want to buy these plans.
Some options should be introduced with sufficient preparations. 1) Epidemic diseases are currently excluded from insurance coverage, but should be included in the future. But it needs government to be a re-insurer. 2) Currently, the insured receive the indemnity only when the insured livestock is dead. There is a need to pay the medical costs when the insured cattle need veterinarian services. But it needs many measures as prerequisite before the adoption of the system. 3) Livestock insurance system needs strong legislative support. Since there already exists a similar law, the Crop Insurance Law, it would be efficient to combine Crop insurance and Livestock Insurance into one law, named Agricultural Insurance Law, rather than having two related but separate laws. These options cannot be adopted in a short period and need years of thorough preparations for successful implementation.
Recently, there is an increasing concern on the price fluctuation as an important factor causing income instability to farmers. Some countries including the United States are implementing a revenue insurance program for livestock. Likewise, similar programs need to be introduced for Korean livestock farmers in the near future for the purpose of risk management.
Researchers: Joo-ho Song, Sung-jin Lim, Tae-kyun Kim
E-mail address: jhsong@krei.re.kr
- Next
- The 2005 Poll Result on Farmers' Attitude Changes and Pending Problems
- Prev
- Evaluation of the Situation and Achievement on Agricultural Policy