Comparison study of agricultural insurance government subsidy and farmers' self-subsistent premium in Indonesia

Abstract

Agricultural Insurance as an embodiment of farmer protection and empowerment is carried out with The Rice Farming Business Insurance (AUTP) facility with an insurance premium scheme by the Government of 80% and 20% by farmers. This study aims to simulate the AUTP premium based on government's subsidy and farmers' self-subsistent premium. The simulation test used panel data estimates in Indonesia Province during 2016-2019. The AUTP premium simulation was identified through the Moderating Regression Analysis (MRA) approach, with the moderate variables being government subsidies and farmers' self-subsistent premium. The Government's premium subsidy policy became a pure moderator that significantly increased the AUTP land area by 0.057%. Meanwhile, the coefficient of the farmers' self-subsistent premium variable has a negative and significant effect on the realization of AUTP in Indonesia. The results of the policy simulation emphasize the importance of the government's role in encouraging the increase in the realization of AUTP through subsidizing premium assistance to farmers. The implication of this simulation of the MRA model is that the response and participation rate of the farmers' premium payments independently is not followed by an increase in the realization of AUTP in Indonesia. The policy implications in the simulation of the two equation models conclude the importance of managing subsidized farmer premium payments and self-subsistent schemes based on insured land and farmer insurance policy. Agricultural insurance policy needs to adopt risk management tools, diversify agricultural insurance programs, and calculate the willingness to pay agricultural insurance premiums appropriately.

Precaution Strategy of Moral Hazard Practice in Agricultural Insurance in Indonesia: An Approach of Soft Systems Methodology

“…In addition to that, there is also an aspect of farmers' independence to not depend on government subsidy for premiums by 80 %. Moreover, Yusuf et al (2021) stressed that the implication of government policy to encourage farmers' independence to participate in paying premiums must be in accordance with the information system of ownership of insured land. Therefore, the governance of farmers' self-subsistent premium payment must be supported with a good land database.…”

“…This is because the implementation of indemnity-based agricultural insurance contracts can provide opportunities for moral hazard and adverse selection in andemic areas. A study conducted by Yusuf et al (2021) revealed that the target of subsidized AUTP land must consider the risk profile to maintain the sustainability of the insurance company. Its implementation is not only carried out in endemic areas -anti-selection.…”

Design of Islamic Agricultural Insurance Model: Evidence from Indonesia

“…In addition, there are some weaknesses in the implementation of agricultural insurance in Indonesia. First, field socialization is felt to be still not very massive, especially to understand farmers about the benefits, procedures, and benefits of this agricultural insurance program [9][10][11][12][13]. Even though the government, in coordination with related institutions at the district/city level, has programmed several agendas for the socialization of agricultural insurance throughout the year, including providing a special budget allocation for a separate agricultural insurance socialization program.…”

Price Determination of Agricultural Insurance Premium Based on Rainfall Index With Black-Scholes Model

“…In calculating the premium, the organizers only base it on one cause, such as rainfall, so it is called agricultural insurance based on the rainfall index. In addition, the amount (price) of the premium also depends on the amount (large) of the insured value and other factors such as interest rates and the time period for data formation (Yusuf et al, 2021;Sujarwo, 2017;Dartanto et al, 2020).…”