Latest Developments in the Agricultural Insurance Market
The agricultural insurance market in Korea has been growing with support measures from the government since 1997 when livestock insurance was first introduced in the country. Currently, around 550,000 farming households have agricultural insurance as of 2022 compared to approximately 64,000 in 2010. Market development has been led by the government-subsidized agricultural and fishery disaster insurance scheme designed to support the management of catastrophic risks and to provide financial stability to the farming and fishery industries.
Crop insurance was developed in 2001 as part of the government-sponsored agricultural insurance scheme. Most types of agricultural produce are covered by crop insurance against a broad range of perils, including natural disasters, fire, blight and damage caused by harmful insects, birds or wild animals. Typhoon, hail and spring frost are among the biggest perils, and the main insured crops are rice and fruit. The subsidy from the national and municipal governments covers up to 90% of the premium, with the insurance buyer's out-of-pocket contribution remaining relatively small. In addition, 100% of insurance operating expenses are also subsidized.
The only insurer which is authorized to write subsidized crop business is NongHyup Property & Casualty Insurance, which sets premium rates in collaboration with the government. Other insurers can participate in the crop insurance market as co-reinsurers along with the government. The co-reinsurance panel cedes to Korean Re, which retrocedes to foreign reinsurers. Livestock risks are written directly by several insurers including NongHyup Property & Casualty Insurance, KB Insurance, DB Insurance, Hanwha General Insurance, and Hyundai Marine & Fire Insurance.
Among farmers, there has been a rising need for risk management through insurance programs amid the increasing frequency and severity of extreme weather events driven by climate change. As of 2022, the crop insurance take-up rate soared to 49.9% compared to 13.6% in 2010. The portion of farmers buying livestock insurance stood much higher at 94.6% in 2022, up from 53.1% in 2010.
In January 2023, the Ministry of Agriculture, Food and Rural Affairs announced measures to improve the agricultural insurance scheme in ways that help the farming industry build resilience to natural disasters and enhance the fundamentals of the insurance programs that can provide fair, reasonable and sustainable insurance protection.
To this end, the government targets to increase the number of insured farming households by 15% to 630,000 by 2027 and raise the number of covered crops from 70 in 2023 to 80 in 2027. Insurance pricing will also be improved to better reflect risk levels of farmers. While a more granular rating system based on smaller geographical units is currently applicable to apples and pears only, the rating method will be applied further to rice, astringent and non-astringent persimmons in 2024. This more granular rating system will help prevent a high loss ratio in a particular community from affecting premium rates in others within the same county.