FFTC Agricultural Policy Platform (FFTC-AP)

ABSTRACT

This report provides a comprehensive analysis of the development and operational performance of South Korea’s agricultural insurance system, focusing on the Crop Disaster Insurance (CDI) program since its inception in 2001 and the more recent Agricultural Revenue Insurance pilot scheme. Over the past 25 years, Korea has established a robust national safety net, achieving a 135-fold increase in insured area and expanding coverage to 76 crops as of 2025. The success of the program is rooted in a unique public-private partnership model, in which the government provides substantial premium subsidies—reducing the farmer's actual burden to approximately 15.1%—and acts as the final guarantor through a national reinsurance scheme. While the program has matured significantly, it faces ongoing challenges, including high volatility in loss ratios in certain regions and the need for more sophisticated risk management tools. Looking ahead, the report outlines short-term goals, such as expanding revenue insurance—highlighted by a dramatic budget surge to USD 141.4 million in 2025—and medium- to long-term strategies involving the integration of ICT technologies (drones, satellites, and yield-monitoring sensors) and structural reforms to strengthen product planning. These experiences offer valuable institutional and fiscal blueprints for other Asian countries seeking to enhance farm management stability amid rising climate and market volatility.

Keywords: Agricultural Disaster Insurance (ADI), Revenue Insurance, Loss Ratio & Volatility, Farmer Premium Subsidy, Republic of Korea

INTRODUCTION

The primary objective of this report is to provide a comprehensive overview of the Crop Disaster Insurance (CDI) program in South Korea, which has served as a cornerstone of the national agricultural safety net for over two decades. While the analysis focuses extensively on the development and operational performance of the CDI program, it also briefly introduces the Agricultural Revenue Insurance scheme, a relatively recent policy instrument designed to mitigate price volatility.

The necessity of this review stems from the increasing frequency of extreme weather events and market instability, which pose significant threats to farm management and food security. Since its inception in 2001, the Korean agricultural insurance model has evolved through a unique public-private partnership, overcoming structural limitations to achieve substantial quantitative and qualitative growth.

By examining the South Korean experience—including its institutional design, budget allocation, and challenges such as loss-ratio volatility—this report aims to provide valuable insights and a practical reference for Asian countries seeking to establish or refine their agricultural policy frameworks. We believe that these lessons in risk management and policy linkage will contribute to the sustainable development of agriculture across the region.

OVERVIEW OF CROP DISASTER INSURANCE PROGRAM

Development and expansion of the crop disaster insurance program

Natural disasters in agriculture often cause damage simultaneously across multiple regions, making risk diversification exceptionally difficult for insurers. As a result, private insurance companies face inherent structural limitations in independently underwriting crop disaster insurance, making it challenging to operate such schemes as standard commercial products without intervention.

Accordingly, from the late 1970s to the early 1990s, the Korean government repeatedly examined the feasibility of introducing a public-private partnership model for crop disaster insurance. However, these early reviews consistently concluded that the expected policy effectiveness would be limited relative to the substantial fiscal expenditures required. Consequently, the program's official introduction was not pursued during that period.

The turning point came in 1999 following Typhoon Olga, which caused catastrophic damage to the agricultural sector and exposed the clear limitations of the existing disaster relief system. In response, the government reconsidered the insurance model, and after approximately two years of intensive institutional design, a policy-based insurance scheme was officially launched in 2001. The program’s primary objective was to stabilize farm income and management, initially covering only two crops: apples and pears.

The core mission of agricultural disaster insurance—encompassing both crop disaster and revenue insurance—is to promote farm management stability by providing compensation for crop losses caused by unpredictable natural disasters. In the medium to long term, the program aims to establish a joint risk management framework between farmers and the government. This encourages farmers to move beyond passive reliance on aid, fostering a culture of active, autonomous risk management within the agricultural sector.

In the early stages of implementation, several operational challenges emerged. Limited institutional experience, unstable loss ratios across the newly insured crops, and a sharp increase in payouts due to massive disasters such as Typhoons Rusa and Maemi placed a significant operational burden on the primary insurer, NongHyup Property & Casualty Insurance Co.,Ltd. Consequently, in 2005, the government introduced a national reinsurance scheme based on a stop-loss design. Under this framework, the government compensates for losses exceeding a certain threshold, a measure that significantly reduced the burden on private insurers and served as a crucial turning point in the program's expansion and stabilization.

Since this stabilization, the program has seen a rapid expansion in the number of covered crops and eligible regions. Following the initial focus on major fruits such as peaches, grapes, and citrus in the early 2000s, the program expanded to field crops (chili peppers, soybeans, onions) in 2008 and to staples such as rice in 2009. Throughout the 2010s, a wide variety of greenhouse crops (strawberries, cucumbers, tomatoes), specialty crops (ginseng, tea), and forest products (walnuts, jujubes) were integrated into the pilot and nationwide programs.

Recent years have seen the inclusion of diverse vegetables and grains to create a more inclusive safety net:

• 2019-2020: Inclusion of carrots, apricots, adzuki beans, barley, and spinach.
• 2023-2024: Expansion to include squash, adlay (Job's tears), blueberries, and watermelons.
• 2025: The program reached a significant milestone, now covering 76 crops with the latest additions of mung beans, ginger, and sesame.

This continuous growth ensures that the vast majority of Korea's agricultural produce is protected, contributing significantly to the stability of farm management nationwide.

Table 1. Development of the crop disaster insurance program

Source: Ministry of Agriculture, Food and Rural Affairs. 2025.

Eligibility and support structure

The accessibility and financial feasibility of the crop disaster insurance program are underpinned by a structured eligibility framework and a multi-layered premium support system designed to minimize the financial burden on individual farm households.

Eligibility for the program is strictly defined to ensure that the insurance functions as a professional management tool. Participation is limited to individual farmers and agricultural corporations that own or cultivate farmland. A critical prerequisite for enrollment is meeting the minimum insured area requirements, which vary by crop to reflect different cultivation standards and risk profiles. This ensures that the insured plots are at a viable commercial scale, enabling more accurate disaster loss assessment and actuarial management.

To cater to farmers' varying risk appetites and financial capacities, the program offers a wide range of coverage levels. While specific coverage terms may vary by crop, most insurance products offer multiple coverage levels, typically including 60%, 70%, 80%, 85%, and 90%. This flexibility allows farmers to choose between lower-premium options with basic protection or higher-coverage levels that offer more robust income security against catastrophic events.

The most significant driver of high participation rates is the comprehensive subsidy structure provided by both central and local authorities.

• Central government support: The national government provides a foundational subsidy, covering 50% of the net insurance premium paid by farmers.
• Local government support: To further encourage enrollment, local governments provide supplementary subsidies that can reach up to approximately 30% of the premium.
• Additional cooperative support: In many regions, local agricultural and livestock cooperatives provide further financial assistance to their members, effectively acting as a third layer of support.

As a result of this robust support framework, farmers' actual out-of-pocket expenses are remarkably low. On average, after accounting for central and local government subsidies, farmers are officially responsible for only about 15.1% of the pure premiums. When the additional contributions from local cooperatives are factored in, the real premium burden borne by farmers is often even lower, making the insurance a highly cost-effective risk management strategy for most agricultural households.

Budget and insured crops

The financial scale of the crop disaster insurance program has undergone a remarkable transformation, reflecting the government's growing commitment to agricultural stability. According to budgetary data, total expenditure for crop disaster insurance exceeded USD 68 million for the first time in 2012 and has continued to rise since. This growth became particularly explosive after 2019, with the total budget reaching a record high of USD 296.3 million in 2021, encompassing both premium subsidies and essential operational cost support.

A detailed analysis of the expenditure components reveals several critical trends:

• Premium subsidy growth: As the primary driver of the budget, premium subsidies saw a dramatic surge in a single year, increasing from USD 126.5 million in 2019 to USD 244.8 million in 2020. This increase of approximately USD 136.1 million highlights the rapid expansion of insurance enrollment and the government’s intensified support for farmers.
• Operational cost support: Reflecting the increasing complexity of managing the program, operational cost support also hit a milestone by exceeding USD 68 million for the first time in 2020.
• Budgetary resilience: Even after the sharp peaks in 2020, the total budget in 2021 remained significantly elevated compared to pre-2019 levels, demonstrating that the program has shifted to a new, higher baseline of fiscal support.

Since its inception in 2001, with a narrow focus on apples and pears, the crop disaster insurance program has undergone a steady, strategic expansion to encompass nearly every sector of Korean agriculture. A significant milestone in this growth occurred in 2020, when five additional crops—apricots (fruit), adzuki beans and barley (food crops), spinach (vegetables), and walnuts (forest products)—were introduced on a pilot basis. This brought the total number of protected crops to 67 by the end of 2020, marking a transition toward a more comprehensive national safety net.

As of 2025, the program has reached a high level of maturity, covering a total of 76 crops categorized into diverse agricultural groups:

• Fruit and food crops: The program provides robust coverage for 13 fruit crops, including citrus, grapes, peaches, and plums, as well as 11 food crops such as rice, soybeans, wheat, and mung beans.
• Vegetables and specialty crops: Coverage for vegetables has expanded to 14 items, protecting staples like onions, garlic, Chinese cabbage, radish, and ginger. Additionally, 4 specialty crops—tea, mulberry, ginseng, and sesame—are now eligible for insurance.
• Forestry and horticulture: The program covers 8 forest products, including chestnuts, jujubes, and walnuts. For the horticulture sector, 23 greenhouse crops (e.g., strawberries, tomatoes, paprika) and 3 types of mushrooms (oyster, king oyster, and enoki) are protected.
• Agricultural facilities: Beyond the crops themselves, the program ensures the stability of production environments by ensuring agricultural facilities, including single-span greenhouses, multi-span greenhouses, and sophisticated glasshouses.

This evolution from a fruit-centric pilot to a multi-sectoral framework demonstrates the program's adaptability to the diverse risks faced by modern farming households, ensuring that specialty and greenhouse cultivation are as protected as traditional open-field staples.

Table 2. Crops covered by the crop disaster insurance program (as of 2025)

Source: Agricultural Policy Insurance and Finance Service

Operational Framework

The operational structure of Korea’s crop disaster insurance program is built upon a sophisticated multi-layered partnership involving government bodies, public agencies, private insurers, and specialized evaluation entities. This integrated system ensures transparent management, professional risk assessment, and stable financial support.

Governance and oversight

The Ministry of Agriculture, Food and Rural Affairs (MAFRA) holds primary responsibility for the program, delegating management and oversight to the Agricultural Policy Insurance and Finance Service (APIFS).

• APIFS: Acts as the administrative hub, responsible for selecting disaster insurance operators through contractual agreements. It formulates comprehensive management plans, monitors business operations, improves insurance products and systems, and manages loss adjuster training.
• Financial oversight: MAFRA and APIFS also oversee the disbursement of premium subsidies and operating costs directly to the insurance operators.

Execution and sales operations

NONGHYUP PROPERTY & CASUALITY INSURANCE (NH Insurance) is designated as the primary disaster insurance operator.

• Implementation plans: NH Insurance develops detailed strategies for promoting enrollment, utilizing operational budgets, and developing new products, all of which are submitted to APIFS for approval.
• Sales channel: The actual sale of insurance products to farmers is conducted through Agricultural and livestock cooperatives, which provide localized access and direct education to the farming community.
• Policyholders (Farmers): Farmers pay their portion of the insurance premium to the operator and, in the event of a disaster, receive indemnity payments based on verified losses.

Disaster loss assessment and actuarial support

To ensure fairness and accuracy in payouts, the system utilizes specialized assessment personnel.

• Loss assessment: Upon the occurrence of a disaster, loss assessment personnel — including loss adjustment firms, individual loss adjusters, and certified loss appraisers — are commissioned to evaluate damage rates and submit assessment reports.
• Rate calculation: The Insurance Development Institute provides critical actuarial support by calculating objective insurance premium rates annually, while the Financial Supervisory Service verifies foundational documents to maintain regulatory compliance.

Risk Distribution and Reinsurance

Given the catastrophic nature of agricultural risks, the framework includes a robust risk-sharing mechanism.

• National reinsurance: Because private insurers have limited capacity to absorb massive losses, the government acts as the ultimate guarantor. Under a profit-and-loss sharing mechanism like Standard Reinsurance Agreements in USDA-RMA, the government and NH Insurance share profits or losses.
• Private reinsurance: To further diversify risk, NH Insurance enters into proportional reinsurance agreements with both domestic and international private reinsurance companies.

OPERATIONAL PERFORMANCE OF CROP DISASTER INSURANCE PROGRAM

Program outcomes and operational performance

Since its official introduction in 2001, the Crop Disaster Insurance (CDI) program has achieved extraordinary quantitative and qualitative growth. The total insured area under the program surged from a modest 4,096 hectares in its inaugural year to 551,735 hectares by 2020, representing a staggering 135-fold increase. Correspondingly, the overall insurance participation rate has risen steadily, from 13.5% in 2011 to 45.0% in 2020, and to an average of 54.4% by 2024.

Trends in Participation Rates

As illustrated in the historical data, participation rates are highly sensitive to disaster occurrences in the preceding year. For instance, the lack of major disasters in 2013 led to a slight decline in the 2014 participation rate. However, several key trends have defined the program's expansion:

• The "rice effect": The introduction of rice insurance in 2009 was a watershed moment. The Grain Participation Rate, which stood at 0.0% through most of the 2000s, began a rapid ascent after 2009, climbing from 11.8% in 2011 to a peak of 54.3% in 2021.
• Fruit and specialty crops: The Non-Grain Participation Rate (primarily fruit crops) showed early volatility, peaking at 24.0% in 2006 before dipping and then rising again to 49.5% by 2021. Severe spring frost damage in 2019 notably triggered a sharp increase in fruit crop production in 2020.
• Current standing (2024): By 2024, participation remained relatively high for core groups such as Food Crops (59.9%) and Fruit Crops (49.6%), while Revenue Insurance remained at a lower pilot stage with 3.9% participation.

Risk Pooling and Farmer Burden

As participation rates increase, the program’s ability to pool risk improves, enhancing overall operational efficiency. Despite subsidy rates often exceeding 80% — with the central and local governments covering the vast majority of costs — the area-based participation rate remained modest at 45.0% in 2020.

However, the financial incentive for farmers remains strong:

• Low individual burden: Officially, farmers pay approximately 15.1% of pure premiums after accounting for central and local government subsidies. This burden is often even lower when additional support from local agricultural and livestock cooperatives is included.
• Diverging premium rates: There is a clear distinction in insurance rates. While Forest Products (15.93%) and Fruit Crops (14.78%) carry higher premium rates, Agricultural Facilities (0.68%) and Food Crops (3.90%) — characterized by very large insured amounts — benefit from much lower rates, which helps pull down the overall program average to 3.32%.

While participation is high for staple crops like rice and the four major fruit categories, it remains relatively low for other food crops and vegetables. Bridging this gap remains a key policy objective to ensure a comprehensive national agricultural safety net.

Table 3. Enrollment and indemnity payments under the crop disaster insurance program (2024)

(Unit: USD million, number of cases, %)

Note: Crop categories are based on 73 items as of 2024.
Source: Agricultural Policy Insurance and Finance Service.