Glossary

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).
Learn more

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.

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This guidance note has been developed to help the increasing number of countries and organisations that are considering or using pre-arranged financing instruments.

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This Disaster Risk Diagnostic supports The Gambia’s efforts to strengthen disaster risk financing and recommends ways to build a clearer risk profile.

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Lessons for IDA from the UK Government’s approach to explicit contingent liabilities.

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This paper charts the evolution of the World Bank’s approach to crisis risk financing.

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This paper proposes an innovative approach to financing contingent liabilities using IDA.

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other key terms

Trigger

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.