Product Development is a complex of activities that insurer undertake to develop and introduce a new insurance product on the market. Product development activities include:
Before actual product development, it is necessary to assess the volume of defined crop(s)’ production, production area per each year of production for the longest consecutive period of data available. Market analysis also includes the production landscape and farming structure for crops in focus, major producer groups (subsistent, small, commercial farmers). Analysis should also include change factors in production trends within a certain period time to assess business opportunities and possible risks for the future.
Identification of Risk Zones and crop production specifics
Crop production is not homogenous in most countries. Depending on the production area, topographic and climatic conditions the crop’s risk exposure may differ significantly. It is a common practice in agricultural insurance to identify risk zones with attributed premium rates reflecting on the actual risk level for the given area calculated by qualified actuaries.
Risk pricing / product rating / PML analysis for re/insurance
Product development includes analysis and estimation of the risk’s frequency and severity. Agricultural insurance actuaries apply calculation models to estimate the risk price based on the crop-related datasets available. Probable Maximum Loss (PML) represents the largest loss believed possible for a certain type of crop/risk in a defined return period (e.g.: 50 or 100 years, or more).
Development of underwriting / loss adjustment guidelines
Each product should possess a set of required documentation that includes guidelines and methodologies. Mostly those relate to program administration, underwriting and loss adjustment activities being among the key in the insurance product cycle. Underwriting methodology and guidelines specify the way risk-taking decisions should be made, and factors to consider when taking crop/risk for insurance. Loss adjustment guidelines are aimed at facilitating transparent crop assessment process and calculation methodology for the estimation of the damage extent and the indemnity sum.
Application of Policy wording / terms and conditions (general, crop-specific)
Terms and Conditions of insurance could be general and crop specific. Policy wording is adjusted to the product structure and special conditions applied for insurance coverage of a specific crop/risk.