Glossary of Terms

Adaptation: in human systems, the process of adjustment to actual or expected climate and its effects, in order to moderate harm or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate and its effects; human intervention may facilitate adjustment to expected climate.

Agriculture input providers: these are suppliers that provide inputs for agricultural production such as fertilizers, fodder, and products that are allowed to be used for crop protection, cleaning, and as additives in food production.

Agriculture sector: also known as the agribusiness sector, it comprises all of the business activities performed that range from agricultural production to final product consumption. The sector is one of the world’s largest employers, both generating income and contributing to food security and nutrition. It includes the entire value chain: the supply of agricultural inputs, the production and transformation of agricultural goods, and their distribution as products to final consumers.

Agro-climate risk management: is the application of risk reduction policies and strategies related to climatic variability and its adverse effects on agricultural production, including the important socioeconomic activities and livelihoods linked with it.

Basis risk: is the risk of discrepancy between an insurance payout and an actual loss incurred. An instance of weak correlation between a defined trigger threshold and realized loss, potentially due to spatial and temporal variations as well as the specificities of the loss, may prevent a payout from occurring. In this case, the insured party bears the amount of the uninsured loss.

Build back better: is the post-disaster integration of disaster risk reduction measures during the recovery, rehabilitation and reconstruction phases in order to increase the resilience of nations and communities through the restoration of physical infrastructure and social systems, and the revitalization of livelihoods, economies and the environment.

Capacity development: is the process by which people, organizations and society systematically stimulate and develop their capacities over time to achieve social and economic goals. It is a concept that extends the term of capacity-building to encompass all aspects of creating and sustaining capacity growth over time. It involves learning and various types of training, but also continuous efforts to develop institutions, political awareness, financial resources, technology systems and the wider enabling environment.

Contingency plan: is a type of risk management tool which is used to ensure that sufficient arrangements are in place in order to respond to a disaster. This is most often carried out via a planning process, which then leads to an action plan and subsequent actions.

Contingent liabilities: are potential liabilities that have not yet been actualized but may occur. Contingent liabilities are important for policy and analysis, and thus information on them needs to be collected. A high level of contingencies may signify an unacceptable level of risk within the agricultural sector.

Credit portfolio: is an investment folder containing debts, like home and car loans. Private investors can build credit portfolios, but more commonly they are held by banks and other financial institutions.

Credit rating: is a score given to an individual, firm or other entity that represents credit risk and whether or not the borrower will be able to pay back the money borrowed, or reimburse the money for items purchased on credit. The rating is based on an entity’s financial status and past records of debt repayment, amongst other factors. Insurance can help to reduce losses caused by credit-default.

Disaster risk management: is the usage of disaster risk reduction strategies and the application of policies to prevent new disaster risk, reduce existing disaster risk and manage residual risk in order to contribute to the reduction of disaster losses and build resilience.

Early warning system: is an integrated system of hazard monitoring, forecasting and prediction, disaster risk assessment, communication and preparedness activities systems and processes that enables individuals, communities, governments and businesses to take timely action in order to reduce the risks of disaster prior to its occurrence.

Financial protections: are the results achieved when financial products are obtained through direct payments in order to build financial resilience and guard governments, the private sector and households from exposure to financial hardship.

Forecast-based financing: is a mechanism that provides access to funding in order to ensure early action and prepares to respond based on in-depth scientific forecast and risk analysis. The mechanism has three components: 1) trigger levels based on detailed risk analysis of relevant hazards for a particular region are identified; 2) selection of actions/predetermined early action to reduce the humanitarian impact of the event; and 3) pre-disaster (early) financing mechanism that automatically allocates funding once a forecast reaches a pre-agreed trigger level.

Forecast-based payout: is the amount of money paid out to an insurance policyholder, which is established according to calculations, estimations and modelling of a future event.

Index insurance: is a type of insurance contract that involves the use of predetermined parameters (e.g. temperature, rainfall, or area yield), and thresholds as the basis for payouts to be issued. Once a certain threshold of a certain parameter is crossed (for example, when rainfall surpasses a predetermined level), payments will be issued to policyholders. Index insurance works in contrast to indemnity insurance, which involves damage assessments and payments that correspond to a policyholder’s actual loss.

Insurance premium: is the amount charged to an insured party for an insurance coverage that reflects the expectation of loss. The terms of the payment (i.e. payment due dates, frequency, and amount to be paid) are stipulated in a contract.

Insurance products: are the different types of insurance agreements sold by an insurer. For example, an insurer may sell car and home insurance, liability insurance, healthcare coverage and contracts tailored for businesses. The various products offered by insurers are made to target different clients and the specific risks that they may be facing.

Integrated climate risk management approach: is a risk-oriented guide which incorporates climate change adaptation measures into disaster risk management policies and plans for sustainable development. It takes into consideration the physical, social, economic, financial and environmental dimensions of a country, region or municipality. It leverages insurance as a risk transfer instrument which can catalyse targeted investments that can be used in order to prevent and reduce risks, address residual risk and prepare to respond and recover from the impacts of a disaster.

Liquidity gap: is the discrepancy between the amount of financial assets accessible from available sources and the actual need for those resources.

NatCatSERVICE database: is a database of losses, which have been caused by natural disasters. This database, owned by Munich Re, is one of the world’s most comprehensive databases. Users of this database can produce quickly online analyses that meet their own needs.

Premium: is the monetary sum paid by the insured party to the insurer for the duration (term) of insurance coverage granted by the policy.

Protection gap: is the disparity of access to financial markets or affordability in emerging and low-income countries and access in high-income countries.

This glossary is based on the following sources:

FAO (2010). Agricultural value chain development: Threat or opportunity for women’s employment? Gender and Rural Employment Policy Brief #4, 2010. Available at http://www.fao.org/docrep/013/i2008e/i2008e04.pdf

Warner, Koko, and others (2013). Innovative Insurance Solutions for Climate Change: How to integrate climate risk insurance into a comprehensive climate risk management approach. Report No. 12. Bonn: United Nations University Institute for Environment and Human Security (UNU-EHS).

World Bank (2014). Financial Protection against Natural Disasters: An Operational Framework for Disaster Risk Financing and Insurance. Available at https://www.gfdrr.org/sites/default/files/documents/Financial%20Protection.pdf

UN General Assembly (2016). Report of the open-ended intergovernmental expert working group on indicators and terminology relating to disaster risk reduction.

World Bank Group (2017). Global Financial Inclusion and Consumer Protection Survey. 2017 Report. Available at http://www.who.int/health_financing/topics/financial-protection/en/

FAO (2017). Agribusiness and value chains. Available at http://www.fao.org/3/a-i6811e.pdf