The glossary provides an overview of relevant terms, concepts and definitions relevant to the climate and disaster risk finance and insurance field

Climate and Disaster Risk Finance and Insurance – Specific Terms

This glossary provides an overview of relevant terms to the thematic intersection of financing and insurance instruments with overall disaster and climate risk management. It therefore limits coverage of terminology from these fields to concepts and definitions which are directly relevant for the solution space of climate and disaster risk finance and insurance in the overall context of the InsuResilience Global Partnership.

For ease of navigation, the glossary is arranged alphabetically. References to terminology which is else-where defined in this glossary are indicated with italicized typeface and a direct link to the definition.

Actuaries / Actuarial science

Actuarial science converges knowledge and skillsets from probability, financial theory, and computer science. Actuarial science professionals, actuaries, assess the financial risk of a particular situation using this broad knowledge and skillset to determine the pricing of various (re)insurance policies in various contexts. Public and private institutions rely heavily on actuarial science to determine the relative risk of various decisions. As such, actuarial science can help identify and encourage risk-reducing behaviors that would result in lower premiums.

Alternative Risk Transfer (ART)

ART refers to both a variety of alternative risk transfer mechanisms, as well as the transferring of risks to alternative risk carriers, particularly capital market investors (as opposed to traditional (re)insurers).

ART emerged in the late 1990s when (re)insurers began looking for further risk capacity to offload their natural catastrophe and weather risks; in line with that, capital markets began to view natural disasters and weather as a new asset class, as investment banks designed new capital-market based instruments to transfer natural catastrophe and weather risks to capital market investors. Several new risk transfer formats emerged, such as cat bonds, catastrophe swaps, parametric insurance solutions, sidecars, and weather derivatives.

Index-based insurance can be seen as a direct byproduct of ART, as transferring risks on a parametric basis allowed for higher transparency and standardization, and therefore created higher interest from investors. Reinsurers, brokers and investment banks alike, therefore, began to develop different trigger mechanisms to be used within cat bonds, cat swaps, and weather derivatives. With an increasingly so-phisticated investor base, this has changed over the years, as dedicated ART investment funds are now able to invest in indemnity-based formats as well. However, the ART market was vital in creating those types of risk-transfer arrangements which are now predominantly used in the context of disaster risk finance for vulnerable countries.

Average Annual Loss

Average Annual Loss (AAL) is the long-term expected loss per year, averaged over many years to model the losses for e.g. parametric insurance. AAL is an indication of the amount of savings a nation needs to set aside each year to cover the cost of long-term losses from that hazard.

Remark: While there may actually be little or no losses, over a short period of time, the AAL accounts much larger losses that may occur more infrequently.

UNDRR, according to

Basis Risk

In financial market theory, basis risk describes the risk that a hedging strategy leads to excess gains or losses and hence does not protect as intended. A hedging strategy, to briefly note, is a strategy to protect against financial losses (such as purchasing insurance to protect against risk uncertainty). Basis risk can be elevated when the investment that needs to be hedged, e.g., the oil price, is imperfectly correlated with the asset being used as a hedge, e.g., a futures contract on oil prices.

Applied to insurance, basis risk is the potential difference between the beneficiary’s losses and the payout it receives from the insurance contract. Basis risk is therefore inherent in index-based insurance, as the payout determined by a parametric trigger may be higher or lower than the actual loss suffered by the beneficiary. Basis risk can be mitigated by customizing the index to match the client’s exposure and vulnerability profile, but it cannot be fully eliminated. Reinsurers sometimes provide basis risk covers as an add-on to index-based products.


The person(s) or party(is) who benefit(s) from protection under a (re)insurance coverage scheme. Beneficiaries may be direct policyholders themselves (e.g., individual smallholder farmers and their household members) or benefit indirectly, e.g. from food distribution financed by payouts from an insurance policy held by a national or sub-national entity (e.g., a household within a community which is insured against coastal flooding).
The InsuResilience Global Partnership takes a household approach for calculating beneficiaries of micro and meso solutions (policies sold * average household size) and a response cost approach for macro solutions (total coverage volume / average response cost per capita and month).
See also “poor and vulnerable”, “vulnerable countries” and “response cost”


An intermediary who negotiates (re)insurance contracts between a (re)insured and (re)insurer on behalf of the (re)insured. Brokers can be involved at various stages of the insurance value chain, providing services in the area of risk modeling, (re)insurance program structuring, program placement, capital management, and alternative risk transfer.


  1. The measure of a (re)insurer’s financial ability to issue contracts of (re)insurance, usually determined by the most significant amount a (re)insurer can potentially pay out for a given risk or by the maximum volume of business it is prepared to accept.
  2. The ability of the market as a whole to manage risks by way of reinsurance.

Catastrophe Bond (CAT Bond)

An Insurance-linked Security (ILS) that is used to transfer natural catastrophe (re)insurance risks to the capital markets. For this, a particular purpose vehicle (SPV) is set up and issues bonds to investors, which pay capital into the SPV and receive a risk-adequate coupon on their paid-in capital. The beneficiary of the Cat Bond (a corporation, (re)insurer or public risk pool) then enters into a risk transfer agreement with the SPV. If a natural catastrophe exceeds a predefined loss threshold (either on an indemnity or index basis), a preset amount of the capital paid in by investors is paid out from the SPV to the (re)insured. A cat bond is generally used for high-severity-low-frequency risks due to investors’ risk-return requirements, which usually limit investments to catastrophe risks in 25 to 200 years return periods (see return period and risk layer). Investors’ motivation is both aimed at diversifying their investment portfolio with an uncorrelated risk and generating relative yield advantages compared to mainstream fixed income instruments (e.g., government bonds, corporate bonds).


A demand by a (re)insured for indemnity under a (re)insurance contract. A claim will be met if the injury, damage or liability at issue was caused by a (re)insured peril which is not excluded and is within the limits of the contract. Depending on the type of (re)insurance model and contract, making a claim can be more or less cumbersome for beneficiaries. In the interest of providing immediate disaster relief to poor and vulnerable communities which may have less technical capacity to submit a claim after such an event, index-based insurance can ease the process of making a claim, as payouts are issued automatically upon the triggering of specific parametric indicators (e.g., wind speed, rainfall, earthquake magnitude, etc.). Some (re)insurance providers may still require post-payout proofs of loss to protect themselves from losses through unnecessary payouts.

Climate and disaster risk finance and insurance

Climate and disaster risk finance refers to pre-arranged financial arrangements and instruments aimed at strengthening financial resilience or providing financial protection for climate and disaster risks, including non-climate-related disaster risks such as earthquakes. The central goal of climate and disaster risk finance is to assist more rapidly and reliably to those in need when a disaster strikes by using an array of quickly disbursing financial instruments. In addition, financial instruments like insurance can also strengthen long-term reconstruction after disasters by covering physical damages to both public and private assets, incl. climate-related crop losses.
Beneficiaries of these schemes may include sovereign and sub-sovereign governments’ disaster-related contingent liability schemes, and schemes for individuals, households and MSMEs. Common examples include budget ex-ante instruments such as reserves, contingency reserves, contingent credit, shock-resistant loans, and risk transfer in all forms (Sovereign Risk Pools, Sovereign Cat Bonds, insurance for agriculture, MSME income and property losses), but can also include ex-post instruments such as budget reallocations or post-disaster borrowing. In the context of the InsuResilience Global Partnership the focus is on ex-ante instruments only to promote financial preparedness of countries and people.

See further the work of the World Bank’s Disaster Risk Financing and Insurance Program.

Climate resilience

Climate resilience refers to the ability of individuals, societies, ecosystmes and countries to withstand and recover from climate change and hazard impacts. This inculudes the ability to adapt to, cope with and protect themselves from the effects of climate change.

See further: 25 Key Terms You Need to Know on Climate and Disaster Risk Finance and Insurance (CDRFI) – Munich Climate Insurance Initiative

Climate Risks

Climate risks in a narrow sense include adverse, sudden onset, extreme weather events such as tropical storms, floods or droughts. While these risks are expected to be exacerbated by climate change, they are not primarily caused by climate change. On a broader sense, climate risks also include slow onset events such as sea level rise, glacier melting and ocean acidification, which are a direct effect of climate change. However, these risks are generally not addressed via climate risk insurance, as their slow onset character calls for different adaptation measures.

Climate risks are highly complex and multifaceted and are accordingly difficult to measure regarding where, to what extent, and how frequently losses and damages will occur. Providing insurance for climate risks, therefore, requires sound risk models to assess and price the respective risks.

Climate Risk Insurance (CRI)

CRI is a financial risk management instrument used to transfer economic losses caused by extreme weather events from individuals/organisations to insurers or other risk-pooling entities.

See further: 25 Key Terms You Need to Know on Climate and Disaster Risk Finance and Insurance (CDRFI) – Munich Climate Insurance Initiative


Co-insurance is a fairly typical practice for insurers where no single insurer wishes to take on board the entire risk. In this case, two or more insurers jointly assume risk under a single insurance policy, where each insurer considers an agreed upon the proportion of the total risk. One insurer usually is the leader. This practice of distributing the cost of risk can enable policyholders to gain coverage for more substantial risks while keeping the costs of that risk affordable to the involved parties.


The presence of complementary, not duplicative CDRFI solutions that collectively manage risks comprehensively, build on existing institutional frameworks, and address pre-existing vulnerabilities, with the aim to lower overall costs and maximize resilience. This specifically includes fostering combinations of adaptation and risk finance measures, which reduce the overall cost of both, while avoiding maladaptation. It also aims to make use and build on existing institutions embedded within national policy frameworks or socio-economic contexts on the sub-national and communal levels. Doing so, also necessitates the promotion of stakeholder collaboration and coordination.

Comprehensive DRF Strategy

Presence of a ‘comprehensive’ disaster risk finance strategy determined by reference to the following key elements:

  1. Risk audit – Strategies quantify risk using pre-existing and new data and define a resilience target to enable risk-informed action.
  2. Disaster risk management (DRM) actions – Strategies are embedded in a DRM plan consisting of risk reduction, risk retention and risk transfer actions
  3. Instrument design – Strategies use situational analysis to define underlying need and inform instrument requirements.
  4. Disaster risk finance instruments – Strategies identify CDRFI instruments.
  5. Risk management strategy – Strategies combine CDRFI instruments to create an efficient DRM strategy using a risk layering approach. This should furthermore take into account affordability considerations, enabling countries to better understand the feasibility of deciding for certain instruments for scenarios with and without international support.
  6. Enabling environment – measures to enhance enabling environment, e.g. regulatory and legislative reforms, financial literacy measures, data enhancement (e.g. of asset registers)

Strategies must include each element to be classified as ‘comprehensive’.

Concessional Support / Financing

In the context of disaster risk finance, concessional support refers to all forms of financial and non-financial support from development partners, which aim at improving governments’ financial and technical capacity to address the financial risks they face from disasters. In many cases, discussions around concessional support will focus more on financial support forms, i.e., concessional financing, as in many vulnerable countries insurance remains underutilized due to a lack of funds to pay for premiums. Concessional financing, either directly via premium financing or indirectly via support tools that lower overall insurance costs, can help increase the demand of those instruments. The primary forms of concessional support are:

  • Premium financing
  • Capitalization of a risk pool
  • Payment of reinsurance costs
  • Subsidizing operational costs
  • Technical Support, incl. For modeling, product structuring, monitoring, etc.
  • Capacity Building
  • Financing risk reduction measures that ultimately lead to lower premiums

Contingency Plan

A contingency plan is a plan of action to respond to certain potential adverse events (contingencies) which could occur and could cause losses. Contingency planning is ultimately about preparing for possible future disruptive unknowns. Contingency plans emerge from thorough risk analyses and assessments as a means to both manage/mitigate that risk and to respond to potential occurrences. As a staple component of climate and disaster risk management, contingency planning can be defined as a management process that analyzes disaster risks and establishes procedures in advance to enable timely, effective and appropriate responses to catastrophes. Within sovereign-level disaster risk finance instruments, payouts can be tied to pre-arranged contingency plans to ensure that the disbursed funds are channeled to immediate disaster response measures which provide relief to the targeted beneficiaries.

See further information at

Contingent Credit

Contingent credit instruments are prearranged forms of financing that are triggered by a predefined contingency, i.e., a potentially harmful event that may occur in the future.

Within disaster risk finance, contingent credit is pre-arranged lines of credit that governments can activate at predefined borrowing conditions (interest rate, duration, credit volume) if a natural disaster with predefined conditions occurs. The main benefit of these instruments is the rapid access to funds for disaster response without having to issue debt out of a distressed position after disasters, which would generally imply higher interest rate requirements from investors.

The World Bank’s Catastrophe Draw Down Options (Cat DDO’s) are to-date the most used type of contingent credit for disaster risk finance and is generally used for mid-frequency-mid-severity events, with insurance coverage providing “on-top” financial protection for low-frequency-high-severity events.

Cost effectiveness / Value for money

Cost-effectiveness of risk-finance and insurance solutions means that the relative costs of support provision are reduced (basis risk and overheads) and that support is offered through mechanisms that promote cost efficiency against the highest achievable resilience outcome. This can be measured against the following indicators:
(iv.a) Reduced probability of non-payment of claims
(iv.b) Reduced overheads in insurance provision
(iv.c) Effective private insurance markets for CDRFI
(iv.d) Effective targeting of public subsidy to increase coverage

See also: Risk layering

(Coverage) Limit

A coverage limit refers to the maximum amount an insurance company will pay out for a covered loss. An insurance policy can include multiple coverages – each for a different type of loss or risk – so it is possible that within one policy there can be multiple coverage limits. Furthermore, coverage limits for a single loss or risk can also vary if coverage is divided into different risk layers. For example, one (re)insurer may only cover losses up to the limit of the first risk layer (e.g., losses up to 100m), after which a separate (re)insurer may cover the second risk layer (e.g., for losses up to 200m). In this case, both (re)insurers have a coverage limit of 100m as they each only cover one risk layer, but the policyholder enjoys coverage for up to 200m in losses.

Crop Insurance

Insurance coverage designed to protect farmers, processors, and wholesalers from climate risks which threaten harvests. Payouts by such schemes can be delivered directly to farmers or the more broadly affected community, depending on the design of the mechanism. Crop insurance in climate-vulnerable contexts is usually implemented via index-based insurance mechanisms. See further: direct insurance, indirect insurance, and index-based insurance.

See for example


Insurance derivatives represent a form of alternative risk transfer in offering an alternative means to traditional (re)insurance to protect against losses. Insurance derivatives, similarly to catastrophe bonds, are a means to transfer risk to the capital market – as opposed to transferring risk to a (re)insurer through a (re)insurance policy. In contrast to traditional (re)insurance protection, insurance derivative providers must back their offered protection with a collateral sum of money equal to the total maximum payout. Investors providing insurance derivatives place this collateral with a third party – such as a bank. As with a traditional (re)insurance product, insurance derivatives offer protection against losses in exchange for a premium – paid directly to the investors. In the event of a covered loss occurring – based on the occurrence of a pre-agreed upon index (i.e., wind speeds over 100km/h) – the payout is issued directly from the third party holder of the coverage sum (e.g. a Bank) to the policyholder.

For the policyholder, one of the advantages of an insurance derivative form of protection is the security that the capital behind their coverage is guaranteed and immediately available for a fast payout (often faster than traditional (re)insurance payouts). Furthermore, the competitive premium rates for insurance derivatives provide prospective policyholders with the benefit of being able to bargain with other, traditional risk transfer providers for lower premium rates.

For the coverage provider – that is, investors offering insurance derivatives – these policies are attractive because they have been transferred to the capital market and can thus be traded and speculated upon. While the trading of these policies in no way impacts the coverage available to the policyholders as their collateral coverage sum remains intact, it offers investors a means by which to make further profits through speculation on the risk/value tradeoff of various policies being traded.

For example, an investor offers an insurance derivative coverage against hurricane damage to a business for a value of 100 Mio. USD. As there is a tropical storm system likely heading toward that business, this investor sells that derivative to another investor for a value of 80 Mio. USD, thus accepting a loss of 20 Mio. USD as opposed to the potential total loss of 100 Mio. USD. The investor who purchased this derivative may have assessed the risk and found that the value at which the derivative is being sold was still cost-effectively a good deal, given the uncertainty surrounding the risk of loss.

Differential exposure to climate and disaster

Differential exposure refers to the presence of people; livelihoods; species or ecosystems; environmental functions, services, and resources; infrastructure; or economic, social, or cultural assets in places and settings that could be adversely affected, with the understanding that women, men, girls and boys, could be exposed differently to climate and disaster related hazards.

For example, more men than women died from Hurricane Mitch in Central America because more were engaged in open-air activities (and therefore exposed) when it struck.


The Centre of Excellence on Gender Smart Solutions has published a more extensive glossary on terms specifically related to gender and CDRFI here.

Differential vulnerability to climate and disaster

Vulnerability refers to the propensity or predisposition to be adversely affected. Vulnerability encompasses a variety of concepts and elements, that can be specific for a person´s gender, including sensitivity or susceptibility to harm and lack of capacity to cope and adapt.

Disasters and changes in the climate affect people differently and can magnify existing gender inequality. For example, both women and men are vulnerable to climate change and disasters, but women often bear more of the burden. This higher vulnerability is not due to biological or physical differences, but is formed by the cultural, social, institutional, and legal context. Subsequently, this gendered vulnerability is not an intrinsic feature of women and girls but rather a product of their marginalization.

For example, cultural norms can constrain women’s access to emergency warnings and disaster shelters, thereby increasing their vulnerability to the disaster.

For more information visit:; UNFCCC 2015; Ashraf & Azad (2015).

The Centre of Excellence on Gender Smart Solutions has published a more extensive glossary on terms specifically related to gender and CDRFI here.


A serious disruption of the functioning of a community or a society at any scale due to hazardous events interacting with conditions of exposure, vulnerability and capacity, leading to one or more of the following: human, material, economic and environmental losses and impacts.

UNDRR Terminology,

Disaster Response

Vision 2025 aims to enhance pre-arranged risk financing and insurance mechanisms for rapid disaster response in vulnerable countries.
Disaster response refers to actions taken directly before, during or immediately after a disaster in order to save lives, reduce health impacts, ensure public safety and meet the basic subsistence needs of the people affected.

Disaster response is predominantly focused on immediate and short-term needs and is sometimes called disaster relief. Effective, efficient and timely response relies on disaster risk-informed preparedness measures, including the development of the response capacities of individuals, communities, organizations, countries and the international community. The institutional elements of response often include the provision of emergency services and public assistance by public and private sectors and community sectors, as well as community and volunteer participation.

“Emergency services” are a critical set of specialized agencies that have specific responsibilities in serving and protecting people and property in emergency and disaster situations. They include civil protection authorities and police and fire services, among many others. The division between the response stage and the subsequent recovery stage is not clear-cut. Some response actions, such as the supply of temporary housing and water supplies, may extend well into the recovery stage.

See also:

Disaster Risk Finance

In the humanitarian and international development context, disaster risk finance defines all instruments aimed at strengthening financial resilience or providing financial protection against disasters and extreme weather events for vulnerable countries and communities. This encompasses both insurances as well as risk financing elements. Usually implemented on a sovereign level, the central goal of disaster risk finance is to assist more rapidly and reliably to those in need when a disaster strikes by using tools like insurance and contingent credit to finance rapid and reliable response to emergencies.

See further the work of the World Bank’s Disaster Risk Financing and Insurance Program:

Disaster Risk Management

Disaster risk management is the application of disaster risk reduction policies and strategies to prevent new disaster risk, reduce existing disaster risk and manage residual risk, contributing to the strengthening of resilience and reduction of disaster losses. Disaster risk finance is one integral component of a comprehensive disaster risk management cycle.

Direct Insurance

Direct insurance refers to insurance schemes which operate on a micro or mesoscale where (re)insurers have contracts directly with the people or parties receiving coverage. For example, direct climate risk insurance schemes provide coverage directly to smallholder farmers instead of operating through a contract with the government.



According to the Pro-Poor Principles, the Partnership aims to deliver climate and disaster risk finance and insurance solutions that provide inclusive and targeted support to promote equitable growth. This specifically entails ensuring that no one is left behind by building mechanisms, including adaptive social protection schemes and direct and indirect premium support for (private) risk transfer solutions. Mechanisms of financial protection should be accessible by everyone in need – even if unaffordable – to make sure that poor and vulnerable people and countries will not carry the burden of increased climate risk, given their already strained resources.

Excess of Loss (re)insurance

In excess of loss (re)insurance contract, a (re)insurer covers the proportion of the policyholder’s losses more than a predefined threshold (or attachment point) and up to a preset limit, as determined by an exhaustion point. Excess of loss insurance is most prevalent in catastrophe reinsurance, where the losses of an insurer per event are layered using attachment and exhaustion points. Explained in other terms, the insurer will retain per event losses up to a certain amount (i.e., USD 100m) while reinsurance may then be purchased to partly or wholly cover losses within the next risk layer (i.e., per event losses between USD 100m and 200m). The per event limit of losses for the reinsurer here is USD 100m, while the exhaustion point of the entire coverage (retention + excess of loss reinsurance) is at USD 200m in per event losses. The following is an example of what this excess of loss structure may look like for a US insurer purchasing reinsurance for tropical storm events in Florida:

  • Retention: USD 0 to 100m, i.e., per event losses up to USD 100m are retained by the insurer
  • Layer 1: per event losses more than USD 100m (attachment point) up to USD 200m (exhaustion point); the limit of damage for the reinsurer being USD 100m
  • Layer 2: per event losses more than USD 200m (attachment point) up to USD 400m (exhaustion point); the limit of loss for the reinsurer being USD 200m


Risks, perils or classes of insurance which are not covered under a contract and for which a reinsurer will not issue a payout. These risks, perils, or types of insurance may be excluded for a variety of reasons – including cases where potential losses are too catastrophic to be financially feasible for the (re)insurer, risks cannot be appropriately modeled and prized, or where losses can stem from easily-avoidable behavior or exposure. In the context of climate and disaster risk finance and insurance, exclusions in a coverage policy can be minimized by adequately embedding these mechanisms within a broader risk management approach to reduce the likelihood and severity of these risks.

Expected Loss

The average loss occurring for a particular (re)insurance contract, expressed in probabilistic terms (estimated likelihood), as computed by a risk model. For catastrophe risk insurance, this is usually the average loss a risk layer is expected to have on an annual basis, expressed in percentage of the layer’s limit. The expected loss is directly related to the return period – for example, a 1-100 year flood may equal a 1% expected loss, while a 1-5 year flood may correspond to a 20% expected loss. In the context of disaster risk finance, expected loss refers to the total loss to the government in infrastructure, disaster response costs, humanitarian costs, etc. which a country is seeking insurance protection is estimated to experience due to a specified peril. The total loss can be layered into different risk layers with individual expected losses to separate the risk the government wants to retain vs. the risk it wants to transfer out to insurers or capital markets.

Exposure (Catastrophe Exposure)

  1. Exposure refers to a body or a person’s susceptibility to risks and their relative likelihood to experience a loss from those risks.
  2. Within risk modeling, exposure refers exclusively to the geographic exposure of the insured assets as defined by its location about the modeled severities and locations of the covered peril.
  3. Exposure from the perspective of a (re)insurance company refers to the amount of potential loss an (re)insurance company is exposed to by a single catastrophic event, such as an earthquake or a hurricane. In this context, exposure is used to calculate the expected loss in conjuncture with vulnerability and hazard (expected loss = exposure + vulnerability + hazard).

See further at UNISDR’s Prevention Web Platform:

Extreme weather events

Extreme weather events are hazards that surpass the average weather conditions in a particular region or season, such as storms and storm surges, tornadoes, tropical, cyclones, extreme rainfall, snowfall and hail and very long periods of heat and drought. Such events are difficult to predict.



Financial Inclusion

Financial inclusion means that individuals and businesses have equal access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way and offered in a well-regulated environment. There is a growing evidence that increased levels of financial inclusion – through the extension of savings, credit, insurance, and payment services – contributes significantly to sustainable economic growth.

Financial Protection

Financial protection enables countries, policy makers and non-governmental organizations to effectively manage the cost of disaster and climate shocks while protecting fiscal balances and the welfare of businesses and households through the application of CDRFI instruments.

Gender responsive or responsiveness & gender-responsive CDRFI

Intentionally employing gender considerations to affect the design, implementation and results of programmes and policies including budgets. Gender-responsive activities and documents reflect people of different gender´s realities and needs, in components such as site selection, project staff, content, monitoring, etc.

Gender responsiveness means applying understanding of gender-specific vulnerabilities and needs, valuing all people’s perspectives, and respecting and understanding their experiences. Gender-responsive programs open space for discussing, challenging, and engaging with inequitable gender structures, systems, divisions, and power relations. They can provide the opportunity for participants to question, experiment and challenge gender inequities.

Note: The InsuResilience Secretariat is commissioning a series of publications to further identify what a good gender-responsive programme looks like.

The Centre of Excellence on Gender Smart Solutions has published a more extensive glossary on terms specifically related to gender and CDRFI here.

Gender sensitive and gender-sensitive CDRFI

A gender-sensitive program acknowledges the gender–differential vulnerabilities to climate change and disasters between people of different genders due to the dynamics of socially constructed behaviours, norms and relationships. It considers the evidence of factors that can result in gender differences in climate change and disaster vulnerabilities, risks and impacts, as well as access and usage of insurance. 

A gender-sensitive program may conduct a gender analysis, acknowledge differentiated vulnerabilities and incorporate this knowledge into activities. For example, providing childcare so that women can attend training. Gender-sensitive action does not address gender relations or the distribution of power to achieve sustainable outcomes.

Note: Through further research, InsuResilience Global Partnership will endeavor to explore this term further and provide an updated definition.

For more information visit: Miles and Wiedmaier-Pfister 2018; CARE International 2020

The Centre of Excellence on Gender Smart Solutions has published a more extensive glossary on terms specifically related to gender and CDRFI here.

Gender sensitivity

Gender sensitivity is the ability to recognize and acknowledge the different and specific vulnerabilities to climate change faced by women, men, and members of LGBTQI due to different perceptions, and interests arising from their different social-economic position and gender roles, and can result in differences on risks, impacts, access and use of insurance and other risk-transfer mechanisms.
Definition applied by InsuResilience Gender WG; based on InsuResilience 2018

Gender smart

Any action or activity that is gender sensitive, responsive and transformative. It incorporates gender considerations specific to the cultural and social context at all stages and aims to achieve gender equality. Gender smart also refers to the integration of gender analysis for better social and financial outcomes, recognizing that CDRFI can impact people differently based on their gender and that there are different opportunities within CDRFI initiatives for men and women.

The Centre of Excellence on Gender Smart Solutions has published a more extensive glossary on terms specifically related to gender and CDRFI here.

Gender transformative or transformation

Transforming unequal gender relations to promote shared power, control of resources, decision- making, and support for the empowerment of people of all genders.

Programs that are gender transformative aim to overcome structural challenges and barriers by incorporating strong actions based on intersectional and context specific gender analyses. Programs might create opportunities for individuals to actively challenge gender norms, promote positions of social and political influence for people marginalised based on their gender in communities, and address power inequities between persons of different genders. They create an enabling environment for gender transformation by going beyond just being gender inclusive, and integrating gender issues into all aspects of program and policy conceptualization, development, implementation and evaluation.

Gender transformation is substantial changes in gender relations towards equality between people of all genders.

Note: Through further research, InsuResilience Global Partnership will endeavour to explore this term further and provide an updated definition.

For more information visit: UN WOMEN; CARE International 2020; WFP 2021

The Centre of Excellence on Gender Smart Solutions has published a more extensive glossary on terms specifically related to gender and CDRFI here.


Hazard is generally used synonymously with peril. Within risk modeling, the hazard component assesses the likelihood and severity with which covered events are expected to occur, leaving aside the exposure (i.e., where are the insured assets located and hence how exposed are they) and vulnerability (i.e., how prone are these assets to be damaged by the respective peril).

See further at UNISDR’s Prevention Web Platform:


In the context of the InsuResilience Global Partnership, impact refers to the effects that the Partnership’s activities and programs have on the lives and livelihoods of vulnerable communities. According to the Pro-Poor Principles, the Partnership aims to make an impact by “creating positive and lasting change for poor and vulnerable people” (for further details also see sub-principles).

Remark: Indicators of impact need to be further defined. For example, Mercy Corps defines positive impact of their financial inclusion work as i) increasing incomes, ii) accumulating assets (and agency over assets), and iii) building resilience. Additional impact indicators to be considered include well-being of people and communities. How these effects can be attributed to the work of the Partnership will be discussed as part of the evidence roadmap, althoughlimitations in assessment possibilities may prevail.


Financial compensation which is sufficient to place the (re)insured in the same financial position after a loss as they were immediately before the loss. This amount is generally calculated based on the ultimate net (i.e., net of any other inuring insurance) loss of the beneficiary.

Indemnity-based Insurance

A (re)insurance contract which pays out compensation worth the ultimate net loss of a specific asset. This type of insurance can be useful in protecting high-value assets such as homes, where there is a relatively narrow scope of potential loss. Insurance payouts are determined based on an assessment of losses after an event has occurred.

Index-based Insurance

In contrast to Indemnity-based Insurance, Index-based Insurance pays out when specific parametric indices of the covered perils are exceeded (e.g., wind speed, rainfall). This allows for a more rapid payout of a pre-agreed amount based on the severity of the index triggered. By eliminating the need for claims settlement, Index-based Insurance provides for a broader range of coverage as losses that are difficult to assess and for which a price is more challenging to calculate can be included. Also, index-based insurance pays out substantially faster than indemnity-based insurance. For this reason, index-based insurance is frequently used within disaster risk finance instruments as it enables timely disaster response measures.

Indirect Insurance

Indirect insurance refers to insurance schemes which operate on a macro scale in contracts with governments (or government operated risk pools) rather than direct provision of coverage to the intended beneficiaries. In these cases, in the event of a disaster, governments receive a payout from the (re)insurer which is then distributed or channeled into disaster response measures to reach the people or parties which have been affected by the disaster.


Insurance is the provision of financial protection against specific losses, typically provided in exchange for regular premium payments. The perils which are covered, the extent of compensation, and the cost of the premiums are agreed upon in the contractual agreement between the insurer and the insured. The insurer, in turn, is a party which provides this service by agreeing to financially compensate people, companies, or organizations for specific losses.

Insurance payout

Insurance payout is the sum of money the insurance company pays to a policyholder.

See further: 25 Key Terms You Need to Know on Climate and Disaster Risk Finance and Insurance (CDRFI) – Munich Climate Insurance Initiative

Insurance Premium

Insurance premium is the monetary amount  charged to an insured individual, organisation or country for insurance protection. The terms of payment (i.e., payment due dats, frequency and amount to be paid) are indicated in a contract, the insurance policy. 

See further: 25 Key Terms You Need to Know on Climate and Disaster Risk Finance and Insurance (CDRFI) – Munich Climate Insurance Initiative

Insurance products

Insurance products are different types of insurance agreements or policies sold by an insurer. For example, an insurer may sell car and home insurance, liability insurance, health care coverage, etc.

See further: 25 Key Terms You Need to Know on Climate and Disaster Risk Finance and Insurance (CDRFI) – Munich Climate Insurance Initiative

Integrated Risk Management

Integrated risk management, as defined by The Executive Committee of the Warsaw International Mechanism for Loss and Damage associated with Climate Change Impacts, includes risk assessment, risk reduction, risk transfer, and risk retention. Integrated risk management should aim to build the long-term resilience of countries, vulnerable populations, and communities to loss and damage. This can be done through the inclusion of social protection instruments and through the dispersal of information about financial instruments as well as tools which address climate risks to create an enabling environment and facilitate the uptake of solutions best suited to the policy context of each country or region.

Further reading at

See further at UNISDR’s Prevention Web platform:

Intersectional analysis

Intersectional analysis aims to reveal multiple identities, exposing the different types of discrimination and disadvantage that occur as a consequence of the combination of identities. It aims to address the manner in which racism, patriarchy, class oppression and other systems of discrimination create inequalities that structure the relative positions of people of different genders. Intersectional analysis posits that we should not understand the combining of identities as additively increasing one’s burden but instead as producing substantively distinct experiences. It is therefore an indispensable methodology for development and human rights work. 

Source: AWID 2004

The Centre of Excellence on Gender Smart Solutions has published a more extensive glossary on terms specifically related to gender and CDRFI here.

Loss and Damage

Based on the UNFCCC definition of loss and damage, we define loss and damage as the adverse effects of climate variability and climate change which remain after climate mitigation and adaptation efforts to which people are not able to cope with or adapt to. Loss and damage stems from cases where 1) coping or adaptation efforts are not sufficient enough to avoid losses and damages, 2) coping or adaptation measures have associated costs which are not retained or compensated, 3) the gains of coping or adaptation measures are short-term but do not remain long-term, or 4) coping or adaptation measures are not possible.

Read further at

Macro-level CDRFI

Macro-level CDRFI refers to financial arrangements on sovereign or sub-sovereign levels supporting national or sub-national governments in addressing early action disaster response and reconstruction needs. This includes macro insurance schemes such as policies offered to countries by regional risk pools (such as CCRIF, PCRAFI, ARC), contingent credits or CAT bonds.

Macro-to-micro insurance mechanism

This refers to the allocation of public resources by governments to purchase insurance or to provide premium support to effectively reach the most vulnerable households after a hazard occurs. There are several ways in which a macro-to-micro level insurance mechanism can work:

  1. The government pays the insurance premiums for individuals and/or households; the persons/households are the insurance policyholders and receive the payout directly from the insurance company.
  2. The government buys insurance from a soverign risk pool, acts as a policyholder itself and distributes the funds to individuals and/or households after a payout is received.

See further: 25 Key Terms You Need to Know on Climate and Disaster Risk Finance and Insurance (CDRFI) – Munich Climate Insurance Initiative

Market Penetration

Market penetration refers to the level of uptake a particular policy or the insurance industry in general enjoys. Penetration rate is measured as the ratio of premium underwritten in a specific year to the GDP. (Re) Insurers wish to increase market penetration to promote uptake of their products and increase premium income. Generally, a high market penetration should lead to a reduced protection gap, so supporting an increased uptake of insurance can be a viable approach to strengthening the financial resilience of vulnerable people.

Meso-level insurance

Meso insurance refers to those situations in which the insured is not an individual, but rather an aggregation of individuals under a collective body. For example, the insured might be an organization that supports a collective of farmers within an area. This meso-level organization buys an insurance product designed to cover the collective of individuals; the individuals themselves are indirect beneficiaries of financial protection. They will receive payments from the meso-level organization, based on any claims paid to the organization through insurance. Such products are often taken out on behalf of vulnerable individuals who do not have adequate protection – or indeed, any protection – through direct personal insurance, as per the example of the Kenya livestock insurance program.

Micro-level insurance

Micro insurance is the direct insurance of individuals or small-business policyholders. Increasingly, however, micro-insurance has come to mean the development of micro-products to insure the most vulnerable individuals in low-income countries; a parallel with the concept of micro-finance.

Moral Hazard

Moral hazard is the idea that (re)insurance coverage may negatively influence policyholder behavior to encourage more reckless practice with a “don’t worry, it’s insured” attitude. This type of behavior could increase the frequency and amount that a (re)insurance company would need to pay out, which in turn would require a repricing of that policy which could eventually become unaffordable – leaving the intended recipient without risk protection and the (re)insurer without business. To avoid this scenario, (re), insurers build in particular clauses to define the conditions under which a payout is warranted.

National Adaptation Plan

The national adaptation plan (NAP) process was established by the United Nations Framework Convention on Climate Change (UNFCCC) as a way to facilitate adaptation planning in the least developed countries (LDCs) and other developing countries. National adaptation plans serve to identify medium- and long-term adaptation needs and develop and implement strategies and programs to address those needs. They are produced in a continuous, progressive and iterative process which follows a country-driven, gender-sensitive, participatory and transparent approach.

See further.

Natural hazard

Natural hazard is a geographical event that occurs naturally and has the potential to cause injury/loss of life or property/environmental damage.



Ownership in the context of the Partnership means to ensure demand-driven and participatory approaches, which build solution design and implementation processes on sound needs-based assessments, are embedded into existing governance structures and market conditions, and strengthen the capacities of stakeholders, specifically national governments and national private sector, while empowering end users to jointly design, decide and implement solutions. It also points to the transparent conduct in terms of funding and delivery of resources, supported by the establishment of processes and mechanisms for meaningful engagement of the end beneficiary.

Parametric Trigger

A parametric trigger is an integral component of an index-based insurance mechanism, which defines when a contract is to pay out to the policyholder. This trigger is typically based on parameters directly related to the risk that the policyholder is seeking to protect against, such as hurricane wind speed or rainfall total. These triggers must be carefully chosen to correspond accurately to specific expected losses and damages arising from the risk against which the policyholder seeks to protect themselves. The contingent nature of a parametric insurance contract, meaning that it pays out only when defined parameters are recorded or experienced, makes the payout mechanism predictable and rapid. This ensures both values for the policyholder and accurate pricing and formation of a risk management strategy for the (re)insurer.

Read further at

Parametric Insurance

Parametric insurance is a type of insurance in which a payout is automatically triggered when certain predefined parameters (e.g., duration of a dry period, amount of precipitation, wind speed) are reached or exceeded. This type of insurance can also be referred to as “index-based insurance” as the triggers are thought of as indexes. These terms are used somewhat interchangeably. Some types of parametric insurance are based on a modelled loss approach in which a payout is triggered when the value of modelled losses, calculated based on the hazard parameters, exceeds a given threshold.

See further: 25 Key Terms You Need to Know on Climate and Disaster Risk Finance and Insurance (CDRFI) – Munich Climate Insurance Initiative



This term refers to the possible types of climate and disaster risks – i.e., wildfire, flooding, drought, tropical windstorm, earthquake, etc.


A person or party who enters into insurance contract(s) wherein an agreed-upon person or party receives financial protection against agreed-upon events or losses in return for the payment of a premium. Policyholders may be separate from the beneficiaries of a policy if they are acting as an intermediary between the insurers and the recipients. See further: direct insurance and indirect insurance.

Poor and Vulnerable

  • Extremely Poor: defined as people with an income below $1.90 PPP / day​
  • Poor: defined as people with an income below $3.10. PPP/day and above $1.90 PPP/day

People vulnerable to climate risk with the risk of slipping (back) into poverty, defined as particularly exposed to extreme weather events earning below $15 PPP/day and above $3.10. PPP/day

InsuResilience Global Partnership (based on MCII 2016)



The knowledge and capacities developed by governments, response and recovery organizations, communities and individuals to effectively anticipate, respond to and recover from the impacts of likely, imminent or current disasters.


Prevention refers to activities and measures to avoid existing and new disaster risks. As an element of climate adaptation and disaster risk management, preventive measures can help to avert expected losses from climate and disaster risk. By minimizing residual risk and associated costs, prevention measures can contribute to making risk finance products affordable and more cost-efficient.


Protection Gap

In the context of the InsuResilience Global Partnership, the protection gap for (climate-related) disasters is defined as uninsured losses as a share of total losses. Two methods are usually considered: (i) actual uninsured losses as a share of actual total losses based on recent disaster events, or (ii) modeled (potential) uninsured losses as a share of modeled (potential) total losses.


One of the Pro-Poor Principles is to implement adequate and high-quality CDRFI solutions that address the needs of poor and vulnerable people. According to the Pro-Poor Principles, important aspects of quality are ongoing learning with a broader risk management context, application of best techniques and practice, evidence-based, needs-based, gender-responsive and inclusive solutions, and careful management of basis risk.


The related term “readiness” describes the ability to quickly and appropriately respond when required.

Regional (Sovereign) Risk Pools

These refer to entities that offer parametric insurance products for governments. Such institutions provide financial protection at reasonable costs. Current sovereign regional risk pools include African Risk Capacity (ARC) Group, CCRIF SPC (formerly known as the Caribbean Catastrophe Risk Insurance Facility), Pacific Catastrophe Risk Insurance Company (PCRIC) and the Southeast Asia Disaster Insurance Facility (SEADRIF).

See further: 25 Key Terms You Need to Know on Climate and Disaster Risk Finance and Insurance (CDRFI) – Munich Climate Insurance Initiative


Reinsurance is the provision of financial protection to insurance companies. Reinsurers, the companies providing this service, handle risks that are too large for insurance companies to manage on their own. This service makes it possible for insurers to offer more policies/coverage than they would otherwise be able to. Reinsurers also help spread out accumulative risks, e.g., natural disasters like earthquakes and hurricanes. Such an event could result in more claims that the primary insurer could pay out without going bankrupt since there would not only be a high dollar amount of claims, but they would also all be made in the same period. By transferring part of the risk (and portion of the premiums) of insuring against these events to several reinsurers, insurance companies can stay solvent and provide these services at affordable rates to individuals and parties.

(Resilient) Recovery

The restoring or improving of livelihoods and health, as well as economic, physical, social, cultural and environmental assets, systems and activities, of a disaster-affected community or society, aligning with the principles of sustainable development and “build back better”, to avoid or reduce future disaster risk.


The capacity of social, economic, and environmental systems to cope with and withstand a hazardous event or trend or disturbance, responding or reorganizing in ways that maintain their essential function, identity, and structure, while also maintaining the capacity for adaptation, learning, and transformation.

Remark: What resilience specifically means in the context of the InsuResilience Global Partnership will be further defined as part of the evidence roadmap and the work on the Partnership’s Theory of Change.

Residual Risk

Residual risk is the risk remaining after risk treatment. In the context of climate and disaster risk finance and insurance, this means the risk of asset or livelihood loss which remains after risk transfer options are in place.

Response Costs

Total costs incurred for undertaking immediate emergency response activities required to save lives, reduce suffering, protect property, and implement other immediate objectives to reduce impacts of emergencies.

For calculating beneficiaries of the InsuResilience Global Partnership, response costs are defined as the average cost to sustain a life in the face of a disaster for one month in a particular region or country.

(Note: This builds on the African Risk Capacity’s approach to use modeled response costs for claim payment)

IGP Accounting Principles

Return Period

Return period refers to the probabilistic frequency at which a loss event is expected to occur expressed in years, for example, a 1-in-5 year flood or a 1-in-100 year flood. The return period is also inversely related to the severity of an event. For example, a 1-in-100 year flood is expected to have a higher severity than a 1-in-5 year flood.


Risk, in extensive terms, is the uncertainty of loss. This uncertainty encompasses doubt about the cause and outcome of a situation, uncertainty as to the occurrence of a loss in a situation, unpredictability about how a situation will unfold, and uncertainty about the chance of a loss occurring and which factors may influence that chance. In insurance, this uncertainty may be contextualized in the probability of damage or expected loss to an asset, or in the likelihood of an event occurring which in turn will lead to asset or livelihood loss. Across each of these cases, the components that determine risk for an insurance model include 1) level of uncertainty, 2) level of risk, and 3) peril and hazard. See also Climate Risks.

(Risk) Layering

Combining (or layering) different financing instruments to protect against events of different frequency and severity in a cost-effective manner. Risk layering allows governments to structure risks and risk transfer instruments for each risk layer in order to optimize cost-effectiveness, allowing the most cost-efficient and effective solution to be applied.

World Bank 2017a

Risk Modeling

Risk modeling assesses the level of risk involved in insuring against a specific event or loss. Risk modeling accounts for the hazard to be insured, i.e., the estimated frequency and severity of the covered peril, the geographic exposure of the assets to be insured, and the vulnerability of these assets. Risk modeling is a highly complex process which requires both substantial internal resources and capacities as well as the considerable quality of historical data on the respective peril. In the context of climate and disaster risk finance and insurance, a lack of adequate data and risk modeling capabilities is often a large barrier to the provision of these services in developing countries.

See for example

Risk Pooling

Risk pooling is a fundamental principle of risk management and insurance: by creating a diversified portfolio of the risks faced by a large number of contributors into a single portfolio, pools ensure that each contributor’s share of the portfolio is less risky than its initial share. Risk pooling does not reduce the underlying risk, but rather allows for improved spreading of risk, leading to potentially significant reductions in the cost of risk, particularly for severe events. Risk pools therefore contribute to more effective and more affordable financial risk management.

World Bank 2017b

Risk Retention

Risk retention is an individual’s, party’s, company’s or country’s decision to take responsibility for a particular risk it faces (i.e., to retain the risk), as opposed to transferring the risk over to a (re)insurance company. Risks are often retained if it is believed that the cost of doing so is less than the cost of fully or partially insuring against it. If a particular risk is retained, losses from that risk must be paid out of an individual/party/company/country’s reserve funds. For this reason, it is essential to ensure that they can properly afford to pay for potential losses before they decide to retain particular risks.

Risk transfer

 Risk transfer refers to the process of tranferring the potential financial consequences of an adverse event from one partz to another. Insurance is one example of a risk transfer tool. 

Sex-disaggregated data

Data that is cross-classified by sex, presenting information separately for men and women. When data is not disaggregated by sex, it is more difficult to identify real and potential inequalities. Sex-disaggregated data is necessary for effective gender analysis. 

The Centre of Excellence on Gender Smart Solutions has published a more extensive glossary on terms specifically related to gender and CDRFI here.

Social Protection

Social protection refers to a wide set of policies and programmes that aim to reduce impacts of shocks and stresses on members of society over the lifecycle. Social protection includes safety nets or social assistance, social insurance, labour market interventions and social services. Social protection programmes have been shown to effectively support communities and households in dealing with chronic vulnerability and poverty. Shock-responsive social protection programmes can respond flexibly in the event of an emergency and be scaled up rapidly.

InsuResilience Policy Brief 2019; based on FAO 2016:


A trigger refers to the variable or index underlying an insurance mechanism: if a predefined threshold as defined through the trigger design is exceeded, the trigger prompts a coverage payout. Triggers can vary across each (re)insurance scheme according to perils, quality of data, needs for simplicity and transparency, and preference for basis risk reduction. For example, according to different needs, a trigger may be defined by a specific severity of loss, the occurrence of an event, the severity of an event, etc.


The process of assessing risks and potential losses to negotiate an insurance contract ultimately – including which risks will be covered, under what conditions, at what value, and for what premium.


Vulnerability describes the susceptibility of exposed assets, people, or parties to injury or loss in a catastrophe. As a critical component of risk modeling, vulnerability refers to the ability of an exposed person or asset to withstand a physical impact through internal forces or structures, and thus resist or avoid fatality, injury, or damage. The vulnerability of assets to climate and disaster risk is therefore primarily driven by construction type (e.g., wood, masonry, etc.).

In the context of international cooperation for strengthened resilience against climate and disaster shocks, vulnerability is often used in a broader sense, i.e., including the exposure of a community or individual to natural disasters, particularly climate risks, as well as its capacity to recuperate and return to an acceptable level of functioning. Adequate insurance coverage is, therefore, a key factor to reduce the vulnerability in this broader definition.

Vulnerable countries

Countries that are particularly susceptible to climate impacts as a result of both exposure and adaptive capacity due to economic development levels. For InsuResilience Global Partnership, it includes all members of V20 group.

Waiting period

 Waiting period is the time between the purchase date of an insurance policy and the date that it comes into effect.