area average index
An index calculated as the area average mean economic loss. It is calculated either as a population mean or as a sample mean. For example, the average crop yield for maize in a subdistrict as measured by a series of statistical samples of crop yield is a type of area yield index.
A cognitive bias whereby people erroneously attribute their own or someone else’s behaviour to a certain cause. In the context of disaster risk management, voters may make attribution errors by attributing investments in preparedness expenditures to future government administrations instead of the government administration that made the investments.
A discretionary ex post model for funding losses. In the case of disaster risk, beneficiaries such as individuals, communities, local and national governments, international agencies, and non-governmental organizations would be required to wait until after a disaster to request, negotiate, and secure funding from benefactors.
An individual or institution that retains discretion until after a disaster over what it will fund, rather than agreeing before a disaster what it will fund.
An amount of funding set aside to cover specific planned expenditures. In the context of disaster risk management, a budget allocation can be made so that it can be accessed only in the event of a disaster.
Money contributed by the shareholders who first purchased shares in a company plus retained earnings.
capital market instrument
Any financial contract that can be structured to act in the same way as reinsurance, but with investors, not necessarily reinsurers, providing the protection. Examples are catastrophe bonds and catastrophe swaps.
An insurance-linked security in which payment of interest and/or principal is suspended or cancelled in the event of a specified catastrophe such as an earthquake.
A contract used by investors to exchange (swap) a fixed payment for a certain portion of the difference between insurance premiums and claims.
A reserve fund designated for financing disaster (p.110) losses. Allocations to the contingency fund can be made through budget allocations of the national or local governments, international agencies, communities, or a combination of these. Funds are made available immediately after a disaster and are disbursed using clear and simple rules.
A financial tool that provides governments with immediate access to funds following disaster events to enable a more rapid and efficient response. This type of financing is typically used to finance losses caused by recurrent natural disasters. A line of contingent credit is an ex ante instrument that allows borrowers to prepare for a natural disaster by securing access to financing before a disaster strikes.
A potential future expenditure. In the case of disaster risk, a government or organization’s contingent liability is a random variable denoting the liability contingent on potential disaster events.
disaster risk finance
The financial protection of populations against disaster events. Disaster risk finance strategies increase the ability of national and local governments, homeowners, businesses, agricultural producers, and low-income populations to respond more quickly and resiliently to disasters.
disaster risk management
The systematic process of using administrative directives, organizations, and operational skills and capacities to implement strategies, policies, and improved coping capacities in order to lessen the adverse impacts of hazards and the possibility of disaster.
disaster risk reduction
The concept and practice of reducing disaster risks through systematic efforts to analyse and manage the causal factors of disasters, including through reduced exposure to hazards, reduced vulnerability of people and property, wise management of land and the environment, and improved preparedness for adverse events.
emergency recovery phase
The disaster response phase that follows the emergency relief phase. During recovery, initial relief efforts have been completed; typically people have access to food, water, and temporary shelter, and children are able to attend school. The recovery phase can last several weeks or months, depending on the initial situation of the country.
emergency relief phase
The disaster response phase that begins immediately after a disaster. During the emergency relief phase, key objectives include ensuring food security, shelter, and medical care. The duration of the relief phase depends on the initial situation of the country following the disaster event.
Latin for ‘from before’. In the context of disaster events, ex ante instruments are arranged before the event, and ex ante decisions are made at that time as well.
(p.111) ex post
Latin for ‘from after’. In the context of disaster events, ex post instruments are arranged after the event, and ex post decisions are made at that time as well.
global humanitarian system
The network of interconnected institutional and operational entities through which humanitarian assistance is provided when local and national resources are insufficient to meet the needs of the affected population.
Within a principal agent problem, the case in which the principal cannot observe the behaviour of the agent. Hidden action is a type of informational asymmetry. See moral hazard.
In general terms, the aid and action designed to save lives, alleviate suffering, and maintain and protect human dignity during and after man-made crises and natural disasters. Such aid may also be used to prevent and strengthen preparedness for the occurrence of such situations.
An insurance policy that pays claims based on the actual economic losses incurred by the policyholder.
An insurance policy that pays claims based on an index. Indexes are typically chosen to be a good proxy of the economic losses incurred by the policyholder.
individual loss adjustment
The process by which a loss adjuster objectively assesses the actual damage for each insured building or injured person.
In insurance, the problems generated when the insured’s behaviour can influence the extent of damage that qualifies for insurance payouts. Examples of moral hazard are carelessness, fraudulent claims, and irresponsibility.
An extreme event leading to loss of lives and livelihoods caused by natural hazards such as tropical cyclones, earthquakes, floods, and landslides.
A type of insurance that does not indemnify the pure loss but ex ante agrees to make a payment upon occurrence of a triggering event. The triggering event is often a catastrophic natural event, which may cause a loss.
post-disaster needs assessment
A government-led exercise that assesses post-disaster needs with a view towards providing a platform for the international community to assist the affected government in recovery and reconstruction.
public financial management
Steps taken to ensure that money is spent and accounted for in a clear and transparent fashion. A public financial management system comprises resource generation, resource allocation, and expenditure management (resource utilization).
Public Health Emergency of International Concern
As defined in the International Health Regulations, ‘an extraordinary event which is determined to constitute a public health risk to (p.112) other States through the international spread of disease and to potentially require a coordinated international response’.
A practice in which insurers transfer portions of risk portfolios to other parties in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim—that is, it is insurance of insurance.
Pricing of an insurance policy to reflect the underlying risk that is transferred through the insurance contract.
An arrangement whereby several individuals, companies, or countries jointly insure against a certain pre-specified risk.
An instrument whereby a party retains the financial responsibility for loss in the event of a shock. Risk-retention instruments do not take risk off the balance sheet—the cost of a disaster must still be repaid. The instrument just offers more flexibility in how and when one would have to pay. Contingency funds, budget allocations, and lines of contingent credit are all risk-retention instruments, as are budget reallocations, tax increases, and post-disaster credit.
An instrument, such as an insurance contract, that passes on the risks associated with a certain event from one party to another. For example, in disaster insurance the financial risks associated with a disaster event are passed from the insured to the insurer.
shock-responsive social protection
Social protection that has the ability to increase its caseload and/or its intensity of support in response to catastrophic events.
status quo bias
The tendency of people not to change what they are doing unless the incentive to do so is strong.
The process of selecting beneficiaries under a social safety net programme.
The event that must occur before a particular insurance policy applies to a given loss. For example, for weather-index insurance a trigger could be the weather measurement that causes the insurance policy to pay out, such as a certain amount of cumulative rainfall.
The process of issuing an insurance policy, thereby accepting a liability and guaranteeing payment in case a loss occurs.