Parametric insurance
A type of insurance that does not indemnify the pure loss but agrees before the event to make a payment dependent on an index. Also known as index insurance. (Clarke and Dercon, 2016).
Disaster
A severe event causing widespread harm that exceeds a community’s ability to cope alone.
Development bank
A public financial institution providing loans, grants and expertise to support development goals.
Catastrophe bond
A catastrophe bond (cat bond) is a risk-transfer financial instrument that allows governments or insurers to transfer disaster risk to capital market investors.
Basis risk
The gap between measured indicators and real losses causing payouts to differ from actual damage.
Sovereign insurance
Sovereign insurance is insurance coverage purchased by a national government to protect its budget against the financial impacts of disasters.
Risk layering
Using different financial instruments for different disaster frequencies.
