1. El Nino and Insurance through participatory design Climate variability has an enormous impact on agricultural productivity, especially in developing countries, as it can prevent farmers from making productive choices that can lead to higher yields. Thus, “bad years” tend to be the main source of risks to farmer incomes and consumption practices. Farmers must try to manage those risks, and be more productive in the remaining “normal” years, even if those years are not quite as good as they used to be. Climate risk management tools allow farmers to better understand climate impacts and available adaptation opportunities, in order to make climate conscious decisions that can lead to increased productivity, hence increased income. Index Insurance for Climate Risk Management Climate shocks can lead to food insecurity, debt, property loss, productive asset destruction or even loss of lives. Climate risk management is an integrated decision- making process, aimed at reducing the impacts of weather and climate extremes on individuals’ lives and livelihoods. Index Insurance Participatory Design In order for insurance to be valuable enough to be purchased and safe enough to be responsible, solutions must allow the poorest farmers in the world to interact with advanced researchers at a more sophisticated level than has been previously seen. This major challenge is by depending on participatory design processes such as the Social Network for Index Insurance Design (SNIID). For example, insurance can help enhance productivity for farmers in normal years by protecting them from the risks of the worst years, providing a foundation for economic growth. Index insurance is a relatively new tool that farmers can use to help manage risk. Index insurance, unlike traditional insurance, pays out based on an index, such as rainfall, which can be measured at a local weather station or by satellite. Index insurance can be integrated into a broader set of climate risk management and development tools specifically designed as a package to decrease farmers’ vulnerability to weather-related risks, improving lives and livelihoods. However, designing and pricing effective index insurance programs has proven to be extremely difficult. If farmers do not know exactly what the limitations of the index are, they may take production chances that are not safe. To be valuable for a low-income farmer to purchase the insurance, it must directly protect a risky production opportunity the farmer is considering. Using participatory processes that involves stakeholders in all stages of product development helps deliver a product that is valuable and affordable, while allowing end-users to adapt to climate impacts. The Financial Instruments Sector Team at the International Research Institute for Climate and Society (IRI) has developed the Social Network for Index Insurance Design (SNIID), a tool used on projects around the world to build a community- driven, development-focused index insurance solution, with a direct link between farmers, experts, partners, and satellite technologies. The challenge of providing an affordable and effective product is the challenge of building an index that targets the most important losses. The SNIID tool includes farmer-driven, science-based software materials, activities and timelines for a community of experts, partners and clients to quantitatively develop and update an index, integrating it into complimentary project interventions. To ensure the sustainability of an index insurance project, in collaboration with stakeholders, we have developed educational materials to guide partners through the process, beginning with establishing key farmer risks and opportunities through to key follow-up and maintenance processes of the product. SNIID processes have allowed index insurance projects to scale by orders of magnitude every year, while at the same time building in farmer input, higher quality control, deeper links to supply chains, higher standardization, stronger review, and product annual updating processes. SNIID has standardized index insurance projects that have operated for several years at large scales, allowing for rapid scaling of highly demanded and responsible products that reduce climate risk threats for many tens of thousands smallholder farmers. SNIID materials are used as templates that can be tailored to meet project and community specific needs, while continuing to carry these objectives. Working closely with farmers, community leaders, and experts in each village, SNIID processes allow end users to formally participate in the design of the complete adaptation strategy, building insurance products that com- pliment the other pieces of the package. In this way, farmers have ownership over the insurance product, and have participated in the SNIID processes to validate and modify it. In accordance with best practices, these templates are also being tailored to regional or local languages, such as Spanish, French, Amharic and Bahasa, in order to engage all community members. Farmer collecting data from a rain gauge, Ethiopia (Credit: IRI) Farmers’ insurance suggestions during a village meeting in Senegal (Credit: IRI) Farmer index design discussions in the Dominican Republic (Credit: IRI) Questions about El Nino in Indonesia For farmers in Indonesia, an El Niño event can cost them their whole harvest. In an El Niño event in Indonesia, the rainfall tends to start later in the season. The temporal shift affects agricultural producers since they may wait to begin planting Over the past three years, IRI in partnership with USAID have been working with Bogor Agricultural University (IPB) to build capacity for index insurance. Part of the capacity building included designing an index to protect these farmers from a deficit in rainfall. In 2014, this partnership tfinanested this index with farmers in the Indramayu, major rice growing region of Java. During this dry run, the IRI experimented with index design questions around rainfall forecast uncertainty and insurance during El Niño years on farmers’ demand for index insurance. Since an El Niño event was forecasted to occur in 2014, the index insurance contracts would be updated to incorporate forecast probabilities over the course of the season. and uncertainty in purchasing insurance is thus crucial to the timing and price of insurance offering by local partners and can have important design implications. From an insurance company perspective, is it worthwhile to offer an insurance product before a forecast for El Niño has been issued? Insurance companies realize that over time, as the El Niño forecast becomes more certain, prices could increase substantially or coverage could drop, then demand may decrease or increase depending on the forecast. From the buyers and sellers perspectives, there is incentive to buy before the El Niño forecast or to buy after depending on the probabilities of an event. The information from this experiment can help to determine the selling time for a commercial insurance product. forecasts. Farmer forecast and Insurance discussions in Indonesia (Credit: IRI) their crops until the rainfall begins. If rice producers plant earlier, the seeds may die before they are able to germinate with insufficient water. However, waiting for rainfall has consequences on the length of the growing season. Even if rainfall is abundant during the monsoon season, the timing and the amount of the rainfall at the end of the growing season can determine the success of the crop. We studied how well farmers understand and use El Niño information. If farmers are aware of and acknowledge the uncertainty in rainfall forecasts in El Niño years will they prefer to wait to purchase insurance later in the season, but face a potentially higher price for insurance? Understanding farmers’ tradeoff between risk Experimental Economics activities in Indonesia (Credit: IRI) El Nino Forecasts and Insurance Forecasts like have different possible implications for index insurance. On the one hand, forecasts could undermine insurance schemes as farmers might decide to insure only when the forecast is for a bad season. On the other, if insurance contracts can be designed to incorporate the seasonal forecast, this could enhance decision making in response to the forecast. For example, where a seasonal forecast predicts a wetter than normal season ahead, a farmer might take advantage of the likely good growing conditions by purchasing inputs – but at the same time use insurance to protect against the lesser likelihood of a drier than normal season. In this way index insurance might help manage the uncertainty inherent in probabilistic forecasts. Authors (alphabetically): Kelly Armstrong, Sarah Blakeley, Melody Braun, Miguel Carriquiry, Rahel Diro, Samantha Garvin, Helen Greatrex, Bristol Mann, Sofia Martinez, Geoffrey McCarney, Daniel Osgood, Jessica Sharoff, Radost Stanimirova, Katya Vasilaky, Jacob Zeitlin