Contingent liabilities
Obligations to pay costs associated with a possible, but uncertain, future event. Because there is no obligation to pay unless the event occurs, contingent liabilities might not be formally listed as a liability on an organisation’s balance sheet. Contingent liabilities might be explicit or implicit:
- explicit contingent liabilities are contractual commitments to make certain payments if a particular event occurs—the basis of these commitments can be
contracts, laws, or clear policy statements; - implicit contingent liabilities are political or moral obligations to make payments, for example in the event of a crisis or a disaster—governments do not recognise these liabilities until a particular event occurs; implicit contingent liabilities are difficult to assess, let alone manage in a consistent manner, precisely because of
their implicit nature (Centre for Disaster Protection).
Governments agree that reducing disaster risk and paying for the risk that remains should go hand in hand. A review of policies in 13 countries finds they are still planned, costed and funded apart.
Read moreThis guidance note has been developed to help the increasing number of countries and organisations that are considering or using pre-arranged financing instruments.
Read moreThis Disaster Risk Diagnostic supports The Gambia’s efforts to strengthen disaster risk financing and recommends ways to build a clearer risk profile.
Read moreLessons for IDA from the UK Government’s approach to explicit contingent liabilities.
Read moreThis paper charts the evolution of the World Bank’s approach to crisis risk financing.
Read moreThis paper proposes an innovative approach to financing contingent liabilities using IDA.
Read moreTrigger
A predefined threshold that activates payments or actions within risk financing mechanisms.
Crisis financing
Funding designed to prevent, prepare for and respond to crises before and after they occur.
Development insurer
An insurer supporting development goals through insurance products and technical assistance.
Crisis protection gap
The difference between expected crisis costs and funding already arranged to cover them.
Basis risk
The gap between measured indicators and real losses causing payouts to differ from actual damage.
Parametric insurance
Insurance that pays when an agreed indicator reaches a set level, not actual losses.






