Assessment moral hazard of crop insurance in Indonesia

Abstract

Moral hazard is crucial issue in insurance not only in developing countries but also in developed countries. This research is to find out the cause of moral hazard on the implementation of crop insurance in Indonesia. To support farmers in risk management and prevent financial losses the Indonesian government subsidizes crop insurance by paying 80% of the premiums. This study asked to farmer as primary data in Karanganyar Regency, Central Java. The result indicates that landholding size, farming experience, age, study experience, income, and farmers' participation in crop insurance influence the farmers' production cost. While farming and study experience has no significant influence on production cost. This study found that there is a risk of moral hazard when farmers are covered by crop insurance. This means that farmers will not take the necessary precautions to protect their crops, leading to greater losses.