traditional insurance has two cost categories. first is the underlying risk that is being insured and, second, the costs involved in operating the insurance, such as carrying out individual risk assessments and loss adjustments. in the agricultural sector these costs tend to be high and premiums are often unaffordable for most poorer farmers. in theory, index-based insurance can cover many farmers while avoiding the need for loss assessment and adjustment. this can reduce some administrative and implementation costs, and also has the potential to limit payouts caused by fraud or poor farming practices.