evidence of over-reporting of yields, and so while the extreme left hand sides of Figures 1 and 2 may be underestimated, the right hand sides, which suggest that much of the WBCIS premium pays for claim payments in good years, are likely to be more reliable.

Second, we do not consider individual farmer yields in this analysis, but rather area average yields. While farmers with farms very near to the weather station may experience lower basis risk than the average farmer in the sub-district, WBCIS claim payments are expected to correlate more closely with area average yields than individual farmer yields. This would bias the above figures in the direction of underestimating the extent of basis risk between most farmers and the WBCIS claim payments.

Finally, significant investments in weather station infrastructure have been made in the last few years by both the public and private sectors, increasing the number of weather stations per district. Since one source of basis risk is likely to arise from the distance between a farmer’s plot of land and the contractual weather station (spatial basis risk), this increase in granularity of weather stations might be expected to reduce basis risk. The degree to which this might happen is an open empirical question.

# _Consumer protection_

While academics may not have a clear idea of the level of basis risk in a particular product, farmers are likely to be even less well equipped to be able to judge whether a product is good or not. In most contexts insurers have incentives to design products that can be understood by their clients. However, the combination of the compulsory nature of WBCIS for borrowing farmers and role of states in selecting between insurance companies has acted to reduce the incentives to design simple, transparent products that are understood by the ultimate clients, the farmers. Contracts are therefore typically complex and a farmer is unlikely to even have a good idea about what the claim payments from the product would have been in the recent past. Poor understanding is particularly detrimental to farmers who are eligible but not compelled to purchase WBCIS insurance.

One potential regulatory response would be to mandate that all weather indexed insurance contracts include a ten year history of what the claim payments would have been, using data from the contractual weather station. If such weather data is not available then data from the nearest government-approved weather station should be used, with an explicit caveat. Requiring insurers to disclose such information would allow farmers to assess whether there were claim payments in bad historical years, and may be considered as a similar type of regulation to requiring that banks state yields for loans in standardized forms, for example as an APR. Hill and Robles (2011) reports on a pilot in Ethiopia in which such information disclosure led to greater understanding of the products by farmers.

Such regulation would, of course, offer incentives to insurers to design products for which the average claim payment over the last ten years was high but the expected claim payment in future years was low. While this is regrettable, the advantages to consumers from such regulation seem likely to outweigh any such disadvantages.

Another cause for concern are reports that insurance companies are designing and pricing products based on historical weather data but then adjusting the length of the sales window based on up-todate weather forecasts for the season, with shorter sales windows where payouts are expected and longer sales windows where payouts are not expected. Such practices might be expected to increase insurer profits but are bad for farmers and premium subsidy-paying central and state governments, and should be addressed by regulators and government.

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