Disaster risk financing

Risk financing and risk transfer tools such as insurance help to ensure that households, businesses and government have sufficient capacity to respond to the financial impacts of disasters. Governments, regulators and industry should build risk awareness and financial literacy among households and businesses.  A policy, regulatory and supervisory framework that  promotes the availability of affordable financial tools should also be implemented. The insurance sector should be encouraged to develop innovative products that address financial protection gaps and meet the needs of consumers.

Governments can make a significant contribution to the reduction of financial protection gaps by investing in risk reduction and adaptation. In some cases, catastrophe risk insurance programmes may need to be established to broaden the availability of affordable insurance coverage.  

Governments are faced with increased spending demands in the aftermath of disasters to support relief, recovery and reconstruction. The potential impacts of disasters on public finances need to be incorporated into fiscal risk assessments, and plans need to be prepared to ensure the availability of adequate funding. 

In looking at different approaches, consideration should be given to how increased public investment in risk reduction could limit the impacts on public finances. 

Building financial resilience to disaster risks is a complex policy challenge requiring expertise from – and coordination across   – different policy areas and levels of government as well as co-operation and concerted engagement with the private sector, particularly the insurance sector. Developing a strategy that takes into account the expertise and possible contributions from across the public and private sectors is critical.

Different risks have different characteristics and implications and are evolving in diverse ways. A number of economic, social and environmental trends – a changing climate, digitalisation, globalisation and urbanisation  – could lead to greater economic impacts from some types of disaster in the future.