Cost-effective distribution of agricultural insurance products is a challenge due to the spread of clients over a large geographical area and hence the problems in accessing them cost-effectively. This situation is aggravated if insured assets have a relatively low value, as for instance in the case of smallholding farmers. This challenge is independent of the insurance products offered.
In industrialized countries, distribution is dominated by direct insurance brokers and agents. In developing economies, such distribution is often too costly and therefore other distribution channels prevail. The most important channels are currently rural and agricultural banks, which have good regional distribution networks and established links to farmers through their credit business. It obviously makes sense also to use these structures for agricultural insurance purposes, either by offering agricultural finance and insurance as a package as the preferred option or on an option combining it, for example, with reduced interest rates as an incentive.
However, other possible distribution channels have also unexploited potential, particularly input and output marketing services (e.g. elevators or storehouse, agricultural traders), extension services, cooperatives, and microfinance institutions. There are synergies that should be used in order to provide cost-effective delivery of agricultural insurance to different target groups.
As agricultural insurance is service intensive, it is questionable whether alternative distribution approaches, for example via Internet and mobile phone networks, will be successful.
Loss Management and Loss Adjustment
Quality insurance requires the timely payout of claims in order to guarantee liquidity for the farmers. To achieve this, efficient loss management processes have to be in place.
Furthermore, in most cases a loss adjustment network is necessary. This is essential for all insurance products requiring an in-field loss assessment (see Table 1) or – in the case of livestock insurance – a loss verification. Only certain index products, for example those based on meteorological triggers, can function without them, though qualified personnel available at regional level is also necessary for the maintenance and supervision of weather stations.
The backbone of a high-quality loss adjustment network is the personnel who have to have specific agronomic, loss assessment, and insurance expertise. It is common practice to have specialist loss adjusters for certain crops and even insured perils. In order to work in a consistent and verifiable manner, loss adjusters need meticulously designed adjustment methodologies and procedures. In case of direct loss insurance best practice is for these methodologies to be derived from crop-specific, scientific field experiments with simulated damage to the crop. Loss adjustment is cost-intensive. Modern technology and future advances will however contribute to lower costs and lead to new applications and processes.
-  These technologies however could be used for premium collection or claims payments (see section “Administration and Data Management”).
-  This service is normally provided by freelance professionals on a fee basis. Regional coordinators of the network managing the in-field adjusters work either freelance or on contract.
-  For an example of such guidelines, see MAPA.
-  See section “Innovation: The Driving Force in all Development Phases”.