The state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC) expects rice farmers to buy crop insurance for 1.5 million rai of farmland this harvest year.
The target accounts for 3% of the country's 64 million rai of farmland. Buying insurance can reduce a farmer's risk of natural disaster, said BAAC president Luck Wajannawatch.
Farmers whose production is damaged by floods, drought, storms or fire will receive compensation of 1,111 baht per rai on top of the government's compensation of 1,113 baht per rai.
The compensation from both the government and crop insurance covers 46% of farm production costs of 4,787 baht per rai.
Farmers will obtain a mere 555 baht per rai if their production is damaged by insect infestation.
"Damage from natural disasters is increasing," Mr Luck said.
"The flooding in late 2011 cost the government 31 billion baht in compensation for farmers, and this prompted the government to seek measures to alleviate such an impact."
Premiums plus duty stamp for the crop insurance scheme vary based on five per-rai rates: 129.47 baht, 247.17 baht, 376.64 baht, 472.94 baht and 510.39 baht, depending on risk exposure in each area.
Farmers are subject to payments in the range of 60 to 100 baht per rai, while the government will subsidise costs of between 69.47 and 410.39 baht per rai.
To encourage farmers to buy crop insurance, the state-backed BAAC will contribute another 10 baht per rai.
Total premiums for crop insurance will reach 470 million baht if the insurance covers 1.5 million rai as expected.
The crop insurance scheme will not only reduce the government's burden of compensation to rice farmers but also prod farmers to manage risk themselves.
A BAAC source said insurance firms taking part in the crop insurance scheme lost 500 million baht on the 2011 floods, obtaining 300 million in premiums but paying 800 million in compensation.