Approaching disaster risk financing in a structured way.
Date: 2024-05-13
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: climate change, disaster resilience, emergency aid, financial aid, financial risk, insurance, national budget, natural disaster

6 &

ISSN 2443-8022 (online)

Approaching 
Disaster Risk 
Financing 
in a Structured Way 

Diana Radu

DISCUSSION PAPER 201 | MAY 2024

EUROPEAN ECONOMY

Economic and 
Financial Affairs

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European Commission  

Directorate-General for Economic and Financial Affairs  

Approaching Disaster Risk Financing in a Structured Way  

Diana Radu 

Abstract  

As the number and magnitude of climate-related disasters in the EU are increasing, the impact of these 
disasters on public finances also depends on the extent to which budgets and budget plans reflect fiscal 
risks  from  disasters.  At  the  same  time,  as  many  of  these  disasters  can  no  longer  be  considered 
exceptional  events,  dealing  with  the  fiscal  cost  of  disasters  calls  for  an  informed  national  disaster 
financing strategy, also as a way to enhance a country’s climate fiscal resilience. This discussion paper 
presents a structured approach to Disaster Risk Financing (DRF) in the EU Member States and describes 
the  key  elements  needed  to  better  understand,  plan  for  and  manage  the  fiscal  cost  of  disasters.  The 
paper proposes a step-by-step approach to DRF, building on previous analysis on the main concepts and 
ways to reduce and limit the fiscal cost of disasters. 

Member States willing to develop a national approach to disaster risk financing can act under four pillars 
to  understand:  (1)  the  fiscal  impact  of  disasters,  (2)  private  sector  risk  ownership,  (3)  public  sector 
disaster  risk  management  and  (4)  institutional  arrangements.  The  Member  States  would  be  able  to 
locate  themselves  in  one  stage  of  development  of  DRF:  “essential”,  “intermediate”  or  “advanced”,  and 
then take action to limit the burden that disasters can put on public finances. 

JEL Classification: G22, O11, O44, Q54. 

Keywords: natural disasters, climate change, disaster risk financing, insurance, risk transfer, fiscal risks, 
disaster losses, national budget. 

Acknowledgements: The author would like to thank Massimo Suardi, Christian Weise, Elva Bova, Maria 
Brattemark,  Magdalena  Bos  Lewandowska,  Marie  Scoler  Mendez  and  Gaston  Van  Der  Meulen  for  their 
advice and comments. 

Contact:  Diana  Radu,  diana.radu@ec.europa.eu,    European  Commission,  Directorate-General  for 
Economic and Financial Affairs. 

EUROPEAN ECONOMY                                                                                              Discussion Paper 201                                            

 
 
 
 
 
 
 
 
 
 
 
 
 
CONTENTS 

1. 

2. 

Introduction ............................................................................................................................................................................... 3 

Disaster risk financing in the EU Member States step by step ................................................................... 4 

             Pillar 1 Identifying fiscal impact from disasters. ......................................................................................................................7 
              Pillar 2 Private sector disaster risk ownership ......................................................................................................................... 10 
              Pillar 3 Public sector fiscal risk management .......................................................................................................................... 11 
              Pillar 4 Institutional arrangements ................................................................................................................................................. 15 

3. 

Conclusion and way forward ....................................................................................................................................... 16 

Box 1.   The Sendai Framework for Disaster Risk Reduction ......................................................................................... 6 

Box 2.   Post Disaster Needs Assessment ................................................................................................................................ 9 

Box 3.   Floods Risk Management Plans ................................................................................................................................. 10 

Box  4.  Disaster  Risk  Management  development  policy  loan  with  a  catastrophe  draw  down  option 
(Cat DDO) to prearrange liquidity in Romania................................................................................................... 13 

Box 5.   State Asset Insurance Scheme in Indonesia ...................................................................................................... 14 

ANNEX 1 ................................................................................................................................................................................................... 18 

ANNEX 2 ................................................................................................................................................................................................... 19 

ANNEX 3 ................................................................................................................................................................................................... 20 

REFERENCES .......................................................................................................................................................................................... 21 

2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.  INTRODUCTION 

Natural disasters pose significant concerns for public finance, and the last years have shown 
that they are not exceptional events. The frequency of extreme weather events is on an increasing 
trend,  as  is  the  30-year  moving  average  of  total  losses  (Graph  1).  Due  to  global  warming,  weather-
related  hazards1  such  as  floods,  droughts,  wildfires  are  projected  to  further  increase  in  intensity, 
frequency and duration in the coming decades. Recent figures from the European Commission estimate 
that  exposing  the  present  economy  to  global  warming  of  3°C  would  result  in  annual  climate-related 
losses of at least € 170 bn (1.38% of GDP) (Szewczyk et al., 2020). 

Graph 1. Number of extreme weather events in the EU, 1980-2021 

Source. Emergency Events Database (EM-DAT), European Commission. 

It  is  of  growing  importance  to  treat  disasters  as  belonging  to  a  new  normal.  This  calls  for 
action  at  national  level  for  disaster  prevention,  preparedness  and  reduction  and  to  upgrade  the 
budgetary planning to take into account the impact of disasters. Climate-related events will impact GDP 
levels and public finances, through the revenue and expenditure channels. Therefore, assessing the (past 
and expected future) impact of climate-related disasters on the economy and on public finances, as well 
as monitoring expenditure allocated to deal with the consequences of disasters, are indispensable steps 
to  inform  the  authorities  in  their  policy  decisions.  This  implies  progressively  upgrading  budgetary 
processes to reflect the macro-fiscal risks from climate-related disasters in a transparent way. 

Current  national  processes  for  disaster  risk  management  and  financing  are  highly 
fragmented.  Elements  of  disaster  risk  management  and  financing  are  spread  over  different  laws, 
government  decrees  or  decisions.  In  most  cases,  disaster  risk  management  (DRM)  is  under  the  lead 
responsibility  of  the  ministry  of  internal  affairs,  while  disaster  risk  financing  (DRF)  rests  mainly  on 
decisions  taken  by  the  ministry  of finance  and  economy.  Disaster  and  climate  experts,  meteorologists, 
environmental scientists and researchers have different roles in the DRM phases and at different stages 
in  the  design,  formulation  and  implementation  of  action  on  the  ground.  Most  notably,  while  evidence 
from international initiatives on disaster resilience2 shows the authorities’ willingness to involve relevant 
stakeholders, the responsibilities are still not articulated around a shared vision on the national process 
and strategy for DRF. 

1 Annex 1 provides definitions of different risk components, including hazards.  
2 Such as the Sendai Framework for disaster risk reduction 2015-2030, adopted by UN Member States in 2015 (see Box 1). 

3 

 
 
 
The availability of information relevant for DRM and DRF varies greatly in scope and detail. 
The  reports  on  disaster  risks,  if  they  are  produced  at  all,  are  generally  published  independently  from 
budgetary  documents.  These  reports  can  be  part  of  the  national  budget  process  or  of  the  national 
strategy  for  DRM,  in  other  cases  they  are  voluntary  products  associated  with  initiatives  such  as  the 
Sendai  Framework  for  Disaster  Risk  Reduction  (see  Box  1)  or  the  EU  guidelines  for  national  risk 
assessments.  Disaster  loss  data  tend  to  be  produced,  collected  and  stored  by  different  actors  in  a 
scattered way, using different methodologies and are rarely public. 

National  budgets’  account  of  the  fiscal  impacts  of  climate  change  is  limited.  The  2021  EU 
Climate Adaptation Strategy has stressed in the first place the relevance of the macrofiscal risks from 
climate  change  and  called  for  action  in  this  respect.  More  recently,  the  Economic  Governance  Review3 
has included for the first time reporting requirements on the fiscal losses and contingent liabilities from 
climate  related  disasters  and  on  the  macrofiscal  risks  from  climate  change.  As  the  macrofiscal  risks 
from  climate  change  feed  into  public  finances  through  different  channels,  this  paper  sets  a  narrower 
perimeter and focusses on the treatment of losses and fiscal risks from climate-related disasters in the 
national sphere. 

Against this background, this discussion paper aims to contribute to a shared understanding 
of the key steps and stages of development of disaster risk financing. It proposes a coherent 
and structured approach to disaster risk financing in four pillars: (1) fiscal impact of disasters, (2) private 
sector  disaster  risk  ownership,  (3)  public  sector  fiscal  risk  management  and  (4)  institutional 
arrangements. This approach could be a reference for the relevant authorities in those Member States 
willing to further structure and develop their disaster risk financing processes and articulate the different 
elements  and  roles  around  a  shared  vision  on  the  management  and  financing  of  disasters.  The 
discussion  paper  provides  some  selected  evidence  on  good  practices  on  DRM  and  DRF  in  EU  Member 
States  and  beyond  and  proposes  to  look  at  the  development  of  sound  DRF  according  to  three  stages: 
basic/essential, intermediate and advanced.  

2.  DISASTER RISK FINANCING IN THE EU MEMBER STATES 

STEP BY STEP 

Public  budgets  need  to  accommodate  new  and  existing  policy  priorities,  while  ensuring  the 
long-term sustainability of public finances. At this juncture, it is important to reflect on how best to 
prepare for, plan and pre-arrange financing for disasters, while at the same time reducing such risks and 
increasing the resilience of societies and the economy to disasters. 

All EU Member States practice some form of disaster risk financing as all of them have been 
confronted with such events at various moments in time, as shown by the recourse to the EU 
Solidarity  Fund  (see  Graphs  2  and  3).  The  EU  Solidarity  Fund  (EUSF)  is  the  main  EU  financial 
instrument  that  provides  financing  to  EU  Member  States,  ex-post.  Access  to  the  EUSF  is  granted  upon 
request  in  the  aftermath  of  disasters  and  for  incurred  damage  above  predefined  thresholds4.  As  the 
amounts granted and timing of disbursement of funds cannot be determined with certainty, the EUSF is 
not  specifically  considered  in  the  national  DRF  approach,  but  mainly  seen  as  a  top-up  to  the  amounts 
mobilised to cover post-disaster costs. 

The  most  common  way  to  deal  with  the  financial  consequences  of  disasters  is  ad-hoc 
financing. This practice rests on identifying the funds needed to cover the cost of a disaster in a budget 

3  The  amended  Directive  on  National  Fiscal  Frameworks  (published  in  OJ  L,  2024/1265,  30.4.2024)  introduces  reporting  requirements 
relative  to  macro-fiscal  risks  from  climate  change  (Article  9(2)(d)),  disaster  and  climate-related  contingent  liabilities  and  fiscal  costs 
incurred due to disasters and climate-related shocks (Article 14(3)). These requirements take account of the existing challenges to assess 
the impact of climate change and Member States would have to apply them “to the extent possible”. 
4 EU Solidarity Fund. 

4 

 
 
 
that  does  not  specifically  take  such  events  into  account.  In  fact,  there  is  limited  evidence  of  natural 
disaster funds or other pre-arranged funding in the national budgets (Radu, 2021 and 2022). 

Ad-hoc  financing  is  suboptimal  in  many  respects.  First,  it  rests  on  mobilising  resources  in  a 
situation  requiring  urgent  action,  while  at  the  same  time  experiencing disrupted economic  activity  and 
government  operations.  This  can  entail  budgetary  reallocations  and  a  longer-term  realignment  of 
investment budgets (OECD, 2015). In addition, acting as insurer of last resort leads to moral hazard. This 
happens when public authorities provide implicit insurance coverage because they are expected to step 
in once a disaster occurs even if no attempt has been made to insure assets against disaster risks. Such 
a situation can even lead to overcompensating disaster costs. Second, it does not follow a clear logic of 
limiting  such  costs  over  time  when  reconstructing  damaged  assets.  Third,  it  does  not  reflect  lessons 
from  past  disasters  and insights  from  the  disaster  profile  of  the  country.  Finally, it  makes  insufficient 
use of available financial products and innovation that could be explored on top of traditional tools for 
disaster financing. 

Graph 2. Number of approved EU Solidarity Fund applications 

Source: European Commission. 

Graph 3: Number of EU Solidarity Fund applications by country (2002-2021) 

 Source: European Commission. 

5 

 
 
 
Acknowledging that there is not a single way to manage the disruption and losses caused by 
a  disaster,  a  structured  approach  should  leave  space  to  national  specificities.  Designing  a 
national  DRF  strategy  that  reflects  a  shared  vision  of  DRM  across  all  stakeholders  would  rest  on  the 
following main elements: develop national knowledge of disaster risks and collect relevant data; produce 
quantitative  disaster  risk  assessments  and  articulate  them  with  the  budgetary  processes;  promote 
cooperation between public services with clear procedures and guidelines; insert resilience objectives in 
the use of public funds for reconstruction and improve the national strategy with an ex-post assessment 
and lessons learnt after each disaster.  

BOX 1. THE SENDAI FRAMEWORK FOR DISASTER RISK REDUCTION 

The Sendai framework for disaster risk reduction was adopted in 2015 by the 193 UN Member States at 
the  Third  UN  World  Conference  on  Disaster  Risk  Reduction  in  Sendai  City,  Japan.  It  aims  to  achieve  a 
substantial  reduction  in  disaster  risks  and  losses  in  lives,  livelihoods  and  health  and  in  the  economic, 
physical,  cultural  and  environmental  assets  until  2030.  The  framework  aims  to  achieve  seven  global 
targets  such  as  reducing  economic  loss/global  GDP,  damage  to  critical  infrastructure  and  disruption  of 
basic  services,  to  increase  the  number  of  countries  with  local  and  national  disaster  risk  reduction 
strategies  and  the  availability  and  access  to  multi-hazard  early  warning  systems  and  disaster  risk 
information and assessments. 38 qualitative and quantitative indicators track progress in implementing 
these targets, introducing a strong accountability element in the framework. 

The Sendai framework encourages the establishment of National Platforms and brings its support with 
specific guidelines in this area. These platforms are mechanisms for coordination and policy guidance on 
disaster risk reduction involving public, private and civil society stakeholders in a country. The platforms 
give valuable insights on how to establish cooperation across relevant stakeholders (on the legal basis, 
mandate and participants) and national authorities could seek potential synergies with the DRF process. 

This structured approach would complement the World Bank DRM and DRF assessment tool5  
and the Sendai framework for disaster risk reduction. The 2022 World Bank Disaster Resilient and 
Responsive Public Financial Management (DRR-PFM) Assessment Tool aims to help developing countries 
be  better  prepared  for,  respond  to  and  recover  from  disasters  caused  by  natural  hazards  with  rapid 
onset  (Annex  2).  The  World  Bank  tool  covers  planning  and  budgeting  for  DRM,  public  investment  and 
asset management, budget execution and control, public procurement, audit and oversight. Three cross-
cutting  themes  are  also  considered:  institutional  arrangements  for  DRM,  IT  systems  and  records  and 
social inclusion. The elements of the 2015 Sendai framework for DRR are broader in coverage and can 
help  countries  develop  DRR  strategies,  make  risk-informed  policy  decisions  and  allocate  resources  to 
prevent new disaster risks (see Box 1). 

3.  FOUR PILLARS FOR A STRUCTURED APPROACH TO DRF 

The key elements of disaster risk financing at country level can be structured in 4 pillars. Pillar 1 refers 
to  the  fiscal  impact  of  disasters,  realised  and  estimated.  Pillar  2  covers  the  risk owned by  the private 
sector, while pillar 3 covers the risk owned by the public sector and how it is managed. Pillar 4 covers 
institutional aspects of governance, transparency and accountability. 

The  elements  outlined  above  are  not  all  fully  new  to  EU Member  States,  but  in general  the 
processes  are  fragmented,  and  responsibilities  are  scattered  across  the  administration. 
Before  reflecting  on  the  overall  DRF  approach,  governments  should  take  stock  of  existing  national 
practices.  This  step  requires  already  a  certain  level  of  resources  and  coordination  to  identify  these 

5 The 2022 World Bank Disaster Resilient and Responsive Public Financial Management: an Assessment Tool, tailored to take into account 
the realities of developing countries. 

6 

 
 
 
practices and to assess them, not least, cooperation between services with different expertise, political 
support  and  technical  skills.  Depending  on  the  degree  of  development  of  DRF  in  the  Member  State, 
disaster  risk  financing  can  require  defining, 
introducing  and  using  new  methodologies  and 
procedures/guidelines  as  well  as  developing  expertise  in  the  relevant  administrations.  As  EU  Member 
States  already  have  in  place  some  of  the  above-mentioned  elements  with  different  degrees  of 
sophistication,  the  proposed  structured  approach  would  allow  them  to  place  themselves  in  different 
development  stages  and  identify  areas  that  could  be  developed.  Accordingly,  the  “essential”  stage 
corresponds to the necessary minimum for Member States interested in a structured DRF approach. The 
“intermediate”  stage  is  more  developed,  with  wider  coverage,  methods,  and  guidelines,  along  with  a 
clearer  allocation  of  responsibilities  and  coordination  across  actors.  The  “advanced”  stage  is  more 
detailed, rests on technical expertise, methodologies and transparency and broadens the scope of DRF to 
include conditional compensation, resilience objectives, ex-post assessment and feedback loops. 

Pillar 1 - Identifying fiscal impact from disasters 

Elements 

Basic / Essential 

Intermediate 

Advanced 

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1

Historical losses from 
physical damage 

Some data available for some 
events 

Data available for all events with a 
significant budgetary impact  

Historical disaster-
related expenditure 

Publicly available 
Partial tracking disaster-
related expenditure 

Publicly available 
Tracking main disaster-related 
expenditure  

Systematic and comparable data 
collected for all events with a 
significant budgetary impact 
Public database 
Tracking all disaster-related 
expenditure  

Future economic loss 
estimates  

Disaster-related 
public expenditure 
estimates 

Transfers to local authorities 
Identification, qualitative 
and/or quantitative 
assessment of risks within 
bandwidths 
Publicly available 
methodology 
In budgetary documents 
Identification and qualitative 
disclosure in budgetary 
documents 

Transfers to local authorities 
Qualitative and quantitative 
assessment within bandwidths for 
risks with high budgetary impact 

Transfers to local authorities 
Quantitative assessment for risks 
with high budgetary impact for 
different scenarios 

Publicly available methodology 
In budgetary documents 

Publicly available methodology 
In budgetary documents 

Quantitative disclosure for some 
risks with a significant budgetary 
impact in budgetary documents 

Quantitative disclosure for all 
relevant risks with a significant 
budgetary impact in budgetary 
documents 

Before looking at planning and budgeting for future disasters, the authorities need to know 
the extent of past disaster costs at a minimum and the share covered by public money. Such 
knowledge  rests  on  the  availability  of  past  disaster  loss  data  and  estimates  of  economic  losses  from 
past  disasters,  which  can  then  be  used  to  estimate  the  explicit  liabilities  from  the  reconstruction  of 
damaged public assets (i.e., infrastructure such as roads, hospitals, schools) and emergency response to 
cover the basic needs of citizens and other contingent liabilities that are likely to be triggered. A robust 
and comprehensive national DRF should start with a good overview of past disaster related losses and 
of  the  share  covered  by  public  spending  and  a  disaster  risk  assessment  based  on  sound  and  public 
methodologies. This pillar has a backward looking and a forward-looking dimension. 

Past disaster loss data collection is the cornerstone of a disaster risk financing strategy, it is 
the  basis  for  the  formulation  of  needs,  material  and  financial,  for  immediate  response, 
reconstruction and recovery. At the same time, past loss data collection and availability appears to 
be one of the main weaknesses of DRF in EU Member States6. Getting good disaster loss data rests on a 
detailed and structured collection of information that usually takes place after the disaster strikes and 
when  damage  can  be  assessed.  The  management  of  such  data,  when  available,  is  also  fragmented 
among different authorities and stakeholders in charge of different tasks. Public authorities would need 
to  cooperate  more  closely  with  insurance  companies,  which  are  currently  the  main  data  collectors,  to 

6 According to the Sendai data readiness review (2017), of the 15 EU Member States that have provided answers to the survey, seven 
have declared to have a national database for collecting disaster losses and four make that data public. The methodologies to collect and 
store the data are very diverse and the process usually involves several different institutions. 

7 

 
 
 
 
 
  
 
 
 
 
 
 
 
  
  
  
  
  
 
find  ways  to  make  this  information  public,  while  addressing  privacy  concerns.  At  a  minimum,  past 
disaster  loss  data  should  be  collected  from  national  administrations  and  made  public,  even  if 
incomplete.  More  developed  practices  would  mean  a  broader  scope  in  data  collection  covering  all 
disasters with a significant budgetary impact (above a predetermined % of GDP). In the advanced stage, 
disaster loss data collection would cover all events with a significant budgetary impact, be comparable 
and  available  in  a  public  database.  Such  databases  need  to  be  developed  and  maintained  as  public 
goods for their potential use in other applications and services. 

Data  on  disaster-related  public  expenditure  gives  insights  on  the  government  role  in  the 
aftermath of a disaster and on the extent of its implication. In particular, it gives the size of the 
public  sector  participation  compared  to  the  overall  damage  and  financial  needs.  Moreover,  such  data 
increases transparency and accountability on the use of public funds for disasters. In the essential stage, 
the  authorities  would  provide  partial  information  on  public  disaster-related  expenditure  (i.e.,  either  for 
some events or some expenditure items). In the intermediate stage, the authorities would cover the main 
expenditure  items  and  be  comprehensive  in  the  coverage  of  public  spending  for  disasters  in  the 
advanced stage. As local authorities drive the post-disaster response and reconstruction effort, transfers 
from  the  State  to  local  authorities  should  be  tracked  in  any  stage  of  development  of  disaster  risk 
financing.  Such  public  spending  is  also  made  possible  by  the  budgetary  arrangements  and  financing 
instruments that are in place to pre-arrange funds to cover disaster risks. As these aspects fall under the 
government  strategy  for  risk  retention  and risk  transfer,  they  are  developed  in  the  pillar  on  the  public 
sector risk management. 

The  forward-looking  dimension  covers  the  economic  loss  estimates  and  fiscal  risks  from 
disasters. 

•  Economic  loss  estimates  require  the  authorities  to  identify,  describe  and  quantify  disaster 
risks  with  various  degrees  of  accuracy,  although  arguably  such  risks  are  surrounded  by 
uncertainty. National risk assessments in their most common form are qualitative and provide a 
risk matrix on the magnitude and likelihood of the hazard. Therefore, the information gap would 
need  to  be  bridged  to  go  from  a  qualitative  assessment  to  quantitative  estimates  of  the 
economic losses from disasters. Information on economic loss estimates should be presented in 
budgetary documents,  fiscal  risk  reports  or  annexes  thereof.  In  the  essential  stage,  qualitative 
information  could  be  provided  and,  where  possible,  estimates  within  bandwidths  (quantitative 
information,  using  historical  data  as  a  central  estimate  for  future  economic  losses).  In  the 
intermediate  stage,  the  authorities  provide  a  qualitative  and  quantitative  assessment  of  risks 
with  high  likelihood  and  magnitude  of  economic  impact  within  bandwidths.  In  the  advanced 
stage, estimates are presented according to different scenarios. 

•  Keeping in mind the link between climate change and disaster risks, countries can start from a 
broader  angle  and  quantify  the  economic  impact  of  climate  change,  be  it  from  climate 
mitigation, adaptation, transition or discrete events such as disasters. The quantification of the 
economic impact of climate change and related disasters impacts is an area under development 
by  academia  and  scientists.  Seminal  in  this  field  is  the  work  of  Nordhaus  on  the  Dynamic 
Integrated  Climate-Economy  (DICE)  model  among  others  (Nordhaus,  2018).  Some  countries 
follow  different  approaches.  For  instance,  Denmark  has  developed  its  own  GreenREFORM 
model7, currently looking at mitigation, but which could be enhanced to include other aspects of 
climate  change  and  policies  and  replicated  and  applied  to  other  countries.  In  a  similar  vein, 
Armenia has successfully used the IMF Fiscal Risk Portal8 to start quantifying fiscal risks from 
climate  change.  The  country  has  used  the  Natural  Disaster  Shock  module  of  the  IMF  Fiscal 
Stress Test9 to assess the impact of different scales and magnitudes of natural disasters on its 
macroeconomic and fiscal outcomes. In addition, the IMF Fiscal Risk Assessment Tool10 enables 

7 https://dreamgroup.dk/economic-models/greenreform. 
8 IMF Fiscal Risk Portal. 
9 IMF Fiscal Stress Test. 
10 IMF Fiscal Risk Assessment Tool. 

8 

 
 
 
 
countries aiming to develop their climate fiscal risk assessment to identify the largest sources 
of  fiscal  risks.  To  be  relevant,  deterministic  models  can  bring  value  where  stochastic  models 
cannot be used due to lack of data (DRMKC, 2017). In any case, the methodology underpinning 
the  estimates  should  be  public  to  allow  debate  and  challenge.  The  Post  Disaster  Needs 
Assessment tool (see Box 2) can be used ex-post to gauge the extent of post-disaster financing 
needs  but  also  to  compare  with  the  ex-ante  disaster  impact  estimates  and  whether  the 
methodology needs to be fine-tuned. 

BOX 2. POST DISASTER NEEDS ASSESSMENT 

Post  Disaster  Needs  Assessment  (PDNA)  is  a  useful  tool  to  assess  ex-post  the  robustness  of  the 
national disaster risk assessments and quantification and whether the provisions made for disasters in 
the  budgets  and  the  disaster  risk  financing  strategy  are  appropriate.  The  PDNA  is  a  joint  project 
between  the  European  Union,  The  World  Bank  and  the  United  Nations  development  group  aiming  to 
support  government  ownership  and  leadership  in  the  post-disaster  needs  assessment  process, 
including  the  financial  resources  needed  for  recovery.  This  assessment  informs  government  officials, 
senior managers from multilateral agencies, technical staff and civil  society in case of a request for 
international  assistance  for  post-disaster  recovery  and  reconstruction.  The  PDNA  puts  together 
information on the socio-economic aspects of disasters and effects (i.e., economic losses), impacts and 
needs.  The  result  is  a  consolidated  report,  similar  to  a  resilient  recovery  strategy.  The  consolidated 
assessment  is  based  on  seven  sector  reports:  social,  infrastructure,  productive,  macro-economy, 
finance, cross-cutting themes, human development (GFDRR, 2013). 

•  Estimates  of  public  spending  for  disasters  should  feature  in  budgetary  documents  and  be 
part  of  the  annual  and  medium-term  budgetary  planning.  Disasters  feed  into  public  budgets 
through  the  revenue  and  expenditure  channels.  A  disruption  in  economic  activity  lowers 
consumption and production and hence leads to lower revenues. The spending channel can be 
apprehended  via  spending  for  emergency  assistance,  public  compensation  schemes, 
reconstructing damaged assets and infrastructure, triggering of other contingent liabilities from 
SOEs, just to name a few. The estimates of the budgetary impact can be more detailed (i.e., a 
bottom-up approach) or be an overall estimate of the expected budgetary impact and financing 
needs. In DRF, the focus would be on the disaster financing needs and therefore, estimates of 
public  spending.  In  the  essential  stage,  the  identified  spending  items  could  reflect  past  data 
which  in  the  absence  of  any  other  estimate  is  the  best  proxy  for  future  needs.  In  the 
intermediate  stage,  public  spending  for  some  risks  can  be  more  easily  estimated  due  to 
availability of models, past experience and frequency of occurrence of hazards (see Box 3). In 
the advanced stage, all relevant risks with a significant budgetary impact would be covered. 

A  common  method  to  assess  risks  across  EU  Member  States  would  be  desirable.  While 
recognising the need for scope to accommodate national features for the treatment of disaster risks and 
related financing needs, developing a common approach to assessing the likelihood of occurrence and 
order  of  magnitude  across  EU  Member  States  has  the  merit  of  comparability  and  convergence  of 
national practices towards good or best practice. Such approach could be useful in the management of 
those disasters hitting several Member States at the same time. 

9 

 
 
 
 
BOX 3. FLOODS RISK MANAGEMENT PLANS 

Floods  are  the  most  common  and  most  costly  natural  disaster  in  the  EU  Member  States.  As  a 
consequence, more efforts have been put into understanding the exposure and vulnerability to floods 
risk, leading to flood risk maps and better collection on information on river basins. At the same time, 
an EU Floods Directive (Directive 2007/60/EC) has given an impetus to the assessment, preparedness, 
reduction  of  flood  risk  and  production  of  flood  risk  management  plans  every  six  years.  Moreover, 
Member  States  are  required  to  produce  an  assessment  of  the  potential  adverse  consequences  of 
future floods on economic activity among others (Article 4(2)(d)). 

Some  national  approaches  driven  by  EU  or  international  commitments  could  evolve  to  be 
better  integrated  within  national  disaster  risk  management  and  financing  strategies.  Some 
examples  of  these  approaches  in  EU  Member  States  are  the  national risk  assessments  (voluntary  and 
not  always  public),  the  flood  risk  management  plans  (produced  every  six  years),  national  energy  and 
climate  plans,  operational  programmes  for  Cohesion  policy,  national  adaptation  strategies  and  plans 
although with a different time horizon than the budget planning horizon. The national voluntary reports 
produced as part of the mid-term review of the Sendai framework in 2022 provide relevant information 
for DRF: a list of the main risks of the country, main stakeholders in monitoring and assessing risks, risk 
governance  and risk  financing  arrangements,  etc.  At  the  same  time,  the  RiskDataHub11,  run  by  the  EU 
Joint Research Centre, is a web platform of European wide risk data and methodologies for disaster risk 
assessment,  populated  with  damage  and  loss  data  from  open  sources.  The  advantage  of  the 
RiskDataHub  is  that  it  could  be  used  by  countries  wishing  to  record  their  information  in  a  database, 
following a unique event ID. DesInventar12 is another disaster information management tool helping to 
generate  national  disaster  inventories  and  the  construction  of  databases  on  damage,  losses  and,  in 
general, effects of disasters, hosted and sponsored by UNDRR. 

Pillar 2 - Private sector disaster risk ownership 

Elements 

Basic / Essential 

Intermediate 

Advanced 

Private assets 
insurance 

Assessment of disaster 
insurance penetration 

Assessment of disaster insurance 
penetration 
Regulatory measures for insurance 
take-up  

Assessment of disaster insurance 
penetration 
Regulatory measures for insurance 
take-up  
Conditional compensation from 
public money  

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Using  risk  transfer  instruments  is  part  of  a  country’s  strategy  to  limit  the  fiscal  cost  of 
disasters.  Disaster  insurance  is  one  of  the  most  widely  used  risk  transfer  instruments  available  for 
most  disaster  risks.  Recent  trends  however  point  to  some  risks  becoming  uninsurable  because  the 
likelihood  of  occurrence  has  become  too  high  (i.e.  droughts).  EIOPA’s  dashboard  on  the  insurance 
protection  gap  for  natural  catastrophes13  provides  insights  at  country  level  for  coastal  floods, 
earthquakes,  floods,  windstorms  and  wildfires.  It  is  a  tool  with  high  potential  that  could  benefit  in 
particular  from  better  national  disaster  loss  data  for  the  private  and  public  sectors  and  a  broader 
coverage of catastrophes. 

11 RiskDataHub. 
12 https://www.desinventar.net/. 
13 EIOPA dashboard on the insurance protection gap. 

10 

 
 
 
 
 
 
 
  
 
 
 
   
 
  
  
  
  
Accurate  and  up-to-date  information  about  disaster  insurance  coverage  is  essential  in  the 
design of a disaster risk financing strategy. First, it is important for public authorities to assess the 
extent of the disaster insurance protection gap, to understand its causes and to take actions to narrow it. 
In  this  respect,  public  authorities  can  create  a  regulatory  environment  encouraging  disaster  insurance 
take-up  and  monitor  the  effective  enforcement  of  these  laws.  Disaster  insurance  penetration  rates 
remain  low  in  some  EU  Member  States  despite  disaster  insurance  being  available  in  various  forms 
(Radu, 2022). Second, it is important to collect information on the insurance of private assets (as well as 
on public assets detailed under Pillar 3) which determines the extent of the government participation in 
the  post-disaster  effort.  Third,  it  informs  the  design  of  the  national  disaster  risk  financing  strategy, 
including by granting  access  to  public  funds  conditional  on disaster  insurance  purchase.  Insurers  could 
also  propose innovative  insurance  products  offering  discounts  conditional  on  risk  reduction,  prevention 
and adaptation measures, called impact underwriting. The robustness of this pillar depends on the close 
cooperation  between  public  authorities  and  private  sector  insurers.  More  cooperation  on  data  and  risk 
assessment  between  public  and  private  sector  would  support  the  risk  reduction  and  prioritisation  of 
resilience investment. 

Insufficient  disaster  insurance  for  households  and  companies  can  become  a  significant 
burden  for  the  government  in  the  aftermath  of  a  disaster.  Taking  stock  of  disaster  insurance 
penetration is therefore a key input to governments aiming to define a disaster risk financing strategy 
that is consistent with the past and potential disaster losses. In the essential stage, the authorities would 
perform an assessment of private assets insurance penetration. In the intermediate stage, the country 
would  adopt  laws  to  support  disaster  insurance  take-up  and  enforcement.  Countries  in  the  advanced 
stage would have information on all the elements above. More details could be available on provisions 
such as for access to public funds conditional on disaster insurance purchase. 

Pillar 3 - Public sector fiscal risk management 

Elements 

Basic / Essential 

Intermediate 

Advanced 

Public insurance 
schemes (for private 
and/or public assets) 

optional 

mandatory (in no private 
insurance) 

mandatory (if no private insurance) 

National budgets 

Managed under the overall 
budget of different ministries  
Ad-hoc financing via 
budgetary reallocations, 
deficit, debt  

Managed under the overall budget 
of different ministries  
Mainly ad-hoc financing  
Some contingent financing 
Some pre-arranged financing 

Public assets 
insurance 

Compensation  

Disaster prevention 
and preparedness 

Main public assets list, 
insurance status in high-risk 
areas, hazard map 

Main public assets list, insurance 
status everywhere, hazard map, 
exposure 

Ad-hoc decision 

No link between spending for 
prevention and preparedness 
and disaster resilience 
objectives 

Legal base and thresholds for some 
sectors/disasters 
Spending for prevention and 
preparedness is linked to broad 
disaster resilience objectives 

Managed under the overall budget 
of different ministries  
Some ad-hoc financing  
Contingent financing in the budget 
Support Schemes  
Reconstruction expenditure 
Mainly pre-arranged financing 
Public assets repository, insurance 
status and promotion, hazard map, 
exposure, vulnerability 

Legal base for compensation 
Comprehensive compensation 
system with link to insurance 
Explicit link between spending for 
prevention and preparedness and 
disaster resilience objectives 
Ex-post review 

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This  pillar examines  the national  disaster  risk financing  strategy  put  in  place  once  disaster 
risks have been identified, including the private insurance coverage for these risks. A national 
disaster  risk  financing  strategy  uses  pre-arranged  funds  for  the  disaster  risk  that  is  retained  by  the 
public  sector,  together  with  the  use  of  disaster  risk  transfer  instruments.  The  strategy  would  need  to 

11 

 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
  
  
 
  
  
  
  
reflect the authorities’ choices on which risks to “retain” (and thus pass on to the public finance, including 
risks from private assets) and which risks to “transfer” by creating a regulatory environment supportive 
of disaster insurance provision and take-up. Usually, the risk of high frequency and low impact disasters 
is retained by governments and reconstruction of public assets represents one of the largest spending 
needs.  The  ensuing  financing  needs  are  covered  by  ordinary  budgetary  arrangements  such  as 
contingency  reserves  or  specific  budgetary  tools  such  as  natural  disaster  funds.  Low  frequency-high 
impact disasters would be transferred through the purchase of risk transfer instruments. 

•  Public insurance schemes 

Disaster  risk  retention  happens  if  a  public  insurance  scheme  is  available.  Differently  from 
private  insurance  schemes,  detailed  in  the  Pillar  2,  these  schemes  entail  public  funds  covering  the 
uninsured  part  of  the  disaster  risk.  Depending  on  the  cost  of  the  shock,  such  schemes  could  require 
additional topped-up public spending if the disaster exceeds the capacity of the public insurance scheme 
to absorb the cost (Radu, 2022). The public disaster insurance scheme can be optional if private disaster 
insurance is available in the essential stage but made mandatory if no private insurance is available in 
the intermediate and advanced stages (for uninsurable disasters risks for instance). 

•  National budgets 

Once a public insurance scheme is established, national budgets and budgetary plans should 
reflect the financing of residual disaster risks in the most comprehensive way. The budgets of 
the ministries usually involved in DRM (internal affairs, health, environment, agriculture) are sometimes 
used  to  cover  disaster  related  expenditure.  In  all  development  stages,  these  budget  lines  should  be 
presented for each of the ministries involved in DRM and DRF with details on situations justifying their 
use to complement or buffer pre-arranged financing. 

The  core  part  of  DRF  refers  to  the  management  of  the  fiscal  cost  of  disasters  under  the 
regular budget plus other disaster financing arrangements the authorities might choose. The 
essential  stage  entails  exclusively  ad-hoc  financing,  either  via  budgetary  reallocations  under  the 
approved  budget  and  expenditure  ceilings  or  running  deficits.  In  the  intermediate  stage,  some  ad-hoc 
financing would still be used to complement contingent financing and some pre-arranged financing (see 
Box 4). Contingent financing is a critical component of DRF that aims to ensure immediate post-disaster 
liquidity to meet emergency and recovery needs and avoid that the allocated budget is not diverted from 
ongoing  projects.  It  can  take  the  form  of  contingent  loans  that  can  be  accessed  in  function  of  the 
disaster type, location and intensity. In the advanced stage, the budget and budgetary strategies would 
reflect DRF arrangements relying only to a limited extent on ad-hoc financing, but mostly on contingent 
financing,  pre-arranged  support  schemes  for  households  and  firms,  budgeted  plans  for  spending  for 
post-disaster reconstruction and other forms of pre-arranged financing. 

12 

 
 
 
BOX 4. DISASTER RISK MANAGEMENT DEVELOPMENT POLICY LOAN WITH A CATASTROPHE DRAW 
DOWN OPTION (CAT DDO) TO PREARRANGE LIQUIDITY IN ROMANIA 

Disasters  represent  a  significant  challenge  for  public  finance  in  Romania.  Between  2005  and  2016, 
Romania  has  received  over  €  119  million  support  for  disaster  reconstruction  through  the  EU  Solidarity 
Fund,  which  represented  a  small  fraction  of  the  overall  damage  from  disasters  and  arrived  with 
unpredictable timing and amounts. Typically, the EU Solidarity Fund payouts are less than 5 percent of 
the  reported  damage.  Despite  the  mandatory  catastrophe  insurance  for  homeowners,  insurance 
penetration  in  Romania  remains  low  at  about  20%  of  the  insurable  housing  stock,  which  represents  a 
significant  contingent  liability  for  the  Government.  The  climate  outlook  and  projected  increase  in  the 
frequency and intensity of natural disasters highlight the need for Romania to increase its physical and 
financial resilience to climate and disaster risks. 

In  this  context,  Romania  has  signed  an  agreement  with  the  World  Bank  in  2018  for  a  disaster  risk 
management  development  policy  loan  of  €400  million  including  a  catastrophe  draw  down  option.  The 
loan  aimed  to  support  the  government’s  efforts  to  comply  with  international  commitments  and 
improving  the  understanding  of  and  response  to  disasters.  Under  this  agreement,  the  Romanian 
government  had  committed  to  strengthen  the  national  framework  for  disaster  risk  management  and 
financing and to strengthen the government’s capacity to systematically identify and reduce disaster and 
climate risk. 

Several prior actions have been considered in the assessment of the Romanian loan agreement: 

-the establishment of a National Platform for Disaster Risk Reduction; 

-the  adoption  of  a  national  emergency  management  information  system  for  emergency  and  disaster 
response; 

-strengthening  the  capacity  to  systematically  identify  and  reduce  disaster  and  climate  risks  and  to 
manage the financial impact of disasters and 

-a revised building design code for seismic risks in existing buildings. 

The Ministry of Internal Affairs, the Ministry of Public Finance and the Ministry of Regional Development 
and  Public  Administration  were  in  charge  of  monitoring  progress  of  the  program  during  the  drawdown 
period, with the Ministry of Public Finance ensuring the overall coordination. 

Romania has been able to use this pre-arranged loan in 2020 to help prevent and respond to the COVID-
19 pandemic. A pandemic is a hazard and climate change can impact the pandemic risk (Poljansek and 
al.,  2021).  The  Romanian  CatDDO  is  an  example  of  prearranged  financing  for  disaster  risks,  not 
specifically for natural disasters (hydrologic, meteorologic, climatologic). It highlights the importance of 
such arrangements in supporting the government to build resilience while at the same time guaranteeing 
access to finance within 48 hours in response to a natural disaster or health emergency. 

Source: https://documents1.worldbank.org/curated/en/120621530243038191/pdf/Romania-DPL-Cat-DDO-PD-
06052018.pdf. 

13 

 
 
 
 
•  Public assets 

The  reconstruction  of  public  assets  is  another  major  source  of  disaster  costs  for  the 
government. To limit the impact, public assets hazard maps and insurance can be put in place. In the 
essential stage, the authorities would produce a list of main public assets compatible with a hazard map 
and  collect  information  on  the  insurance  status  of  main  public  assets  in  high-risk  areas.  In  the 
intermediate stage, the country would complete the assessment of public assets insurance to the entire 
territory,  jointly  with  a  hazard  map  and  list  of  public  assets  exposed  to  hazards.  This  would  require  a 
more detailed treatment of public assets to understand what can be insured and how. Countries in the 
advanced stage would present more details in a public assets repository also reflecting vulnerability to 
hazards,  comprehensive  information  on  public  assets’  insurance  status  and  a  national  policy  on 
insurance of public assets (Box 5). 

BOX 5. STATE ASSET INSURANCE SCHEME IN INDONESIA 

Indonesia  has  put  in  place  a  State  Asset  Insurance  Policy  programme  to  insure  public  assets  against 
climate and disaster risks, in the context of the National Disaster Risk Financing and Insurance strategy. 
In 2019, the government introduced a state building insurance scheme, as the first phase of the State 
Asset insurance  mechanism.  The scheme provides insurance for natural  disasters, funded by a pool of 
private  insurers.  This  scheme  was  introduced  for  the  Ministry  of  Finance’s  buildings  in  2019  and 
extended  to  buildings  belonging  to  other  ministries  in  2020.  The  estimated  insurance  value  of  the 
government  buildings  to  be  covered  by  this  scheme  amounts  to  IDR  371  trillion  (13%  of  GDP).  The 
insurance premium for disaster risks is estimated to be 0.2 % of the building values. The overall scope 
of  assets  to  be  covered  in  the  future  includes  buildings,  bridges,  transportation  modes,  and  other 
government properties. The assets covered have to be exposed and vulnerable to disasters and to have 
significant contribution to public services. 

•  Compensation rules 

Upfront  clarity  on  the  compensation  rules  and  access  to  public  funds  is  part  of  DRF 
arrangements. Such rules bring clarity to potential beneficiaries but also facilitate planning DRF for the 
amounts that could be disbursed in case of disaster. Moreover, concerning the fiscal implications, such 
compensation rules would set a perimeter or cap on the size and scope of the State involvement post-
disaster,  thereby  limiting  the  implicit  liabilities.  The  default  situation  is  where  compensation  rules  are 
decided ad-hoc and after the occurrence of the event (essential stage). In the intermediate stage, a law 
would, for example, establish that for certain types of disasters the State would provide compensation 
up to pre-set thresholds for some sectors. The most advanced stage would mean that a law covers the 
provision and access to public compensation in detail. Compensation conditional to purchase of disaster 
insurance would also be part of the most advanced arrangements. 

•  Disaster prevention and preparedness 

Measures  for  disaster  prevention  and  preparedness  are  steps  in  DRM  that  limit  the  human 
and material loss and contribute to a faster post-disaster recovery, in particular when they 
are linked with resilience objectives. Although not specifically linked to disaster risk reduction, public 
spending  for  disaster  prevention  and  preparedness  that  reflects  disaster  resilience  objectives  is  a 
powerful  way  to  reduce  the  impact  of  disasters.  In  the  essential  stage,  clarity  on  public  spending  for 
prevention  and  preparedness  contributes  to  the  overall  assessment  of  the  DRM/DRF  strategy,  even  if 
such spending is not directly linked with disaster resilience objectives14. In the intermediate stage, public 
spending for prevention and preparedness set out in a comprehensive DRM strategy would be linked to 
broad resilience objectives. In the advanced stage, the link with disaster resilience objectives would be 

14  Disaster  resilience  goals  can  target  increasing  awareness,  the  capability  to  assess  disaster  risks,  establishing  or  improving  early 
warning systems, etc. In 2023, the EU has adopted a Recommendation and Communication on disaster resilience goals. 

14 

 
 
 
straightforward and the country would assess ex-post the prevention and preparedness measures that 
had been implemented until then. 

Annex 3 proposes a set of questions that Member States could reflect upon to gather initial knowledge 
on the state of play with respect to budgeting for fiscal risks from natural disasters. 

Pillar 4 - Institutional arrangements 

Elements 
Transparency and 
monitoring 

Basic / Essential 
All information is public, 
information on DRM funds 
and expert assessment of 
methodology 

Intermediate 
All information is public in budget 
documents, expert opinion on 
methodology and post-disaster risk 
management  

Advanced 
All information is public in budget 
documents, expert opinion on 
methodology and post-disaster risk 
management, monitoring funds use 

Governance and 
coordination 

Some coordination across 
public services 
Ad-hoc task force 

Clear role and resources across 
relevant ministries and services 
Permanent DRM/ DRF service 

Established correspondents in 
relevant ministries 
Permanent DRM/DRF in MoF for 
coordination 

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Institutional  arrangements  for  governance,  coordination,  transparency  and  monitoring  are 
key elements of DRF as the nature of the operations requires swift and efficient action and 
allocation  of  resources.  Institutional  arrangements  are  important  in  anticipating  and  managing 
disaster  response,  from  a  material  and  financial  perspective.  Underpinned  by  appropriate  institutional 
arrangements, DRF speeds up the normalisation and reconstruction after a disaster. These arrangements 
are  part  of  disaster  preparedness,  and  they  show  who  has  the  authority  to  coordinate  actions  of  the 
main actors, which other stakeholders are involved and how the post disaster financial needs are met. 

•  Transparency and monitoring 

All aspects of DRF should be addressed transparently. This means transparent methodologies for 
risk assessments, disaster loss data collection and reporting, governance arrangements and deliverables, 
and use of funds. The databases, methodologies, reports and support documents outlining DRF should 
be public and subject to expert assessments. A regular review and update are also warranted to keep the 
pace  with  new  methodologies  and  models  as  they  are  developed.  This would  ensure  that  the  national 
DRF is based on the most plausible inputs. When a country is in the intermediate stage, it is expected to 
have expert assessments of the methodologies and post-disaster assessments of risk management and 
of  the  link  between  reconstruction  efforts  with  resilience  objectives.  In  its  most  advanced  form,  DRF 
would also include procedures for control systems to track and report disaster-related expenditure in the 
most accurate manner. This could also involve the national parliament. 

•  Governance and coordination 

The  diversity  of  DRM  and  DRF  actors  calls  for  coordination  across  stakeholders  and  clear 
attribution of responsibilities. The tasks that need to be fulfilled also call for commensurate human 
and  administrative  resources.  Procedures  and  guidelines,  memoranda  of  understanding  between 
different ministries or a law bring clarity on the allocation of responsibilities, roles and timing of actions 
in case of disaster. The design of the DRF should be the result of joint work between the authorities and 
stakeholders  that  traditionally  take  part  in  the  post  disaster  phase  (i.e.  ministry  of  interior  or  home 
affairs,  health  or  environment,  civil  protection  agencies,  non-governmental  stakeholders,  experts,  think 
tanks).  The  lead  ministry  for  implementing  DRF  should  be  in  principle  the  ministry  in  charge  of  the 
budget (i.e. Ministry of Finance). In practical terms, the coordination could be ad-hoc and ensured by a 
task force in the basic/essential stage of DRF and go as far as to establish correspondents in relevant 

15 

 
 
 
 
 
 
 
  
 
 
 
ministries and a permanent coordinating service in the Ministry of Finance in the most developed form 
of DRF. As DRF requires specific expertise across different fields, the correspondents or relevant services 
should maintain and update the skills needed to develop and keep DRF processes up to date by means 
of expert group meetings, peer-learning and trainings. 

•  Support documents/deliverables 

DRF should have a solid base, either a law or a reference document/strategy/platform detailing the roles 
of the main actors and the timing of their actions with respect to a disaster. Instead of developing them 
from  scratch,  the  Sendai  National  Platforms  for  Risk  Reduction  could  serve  as  a  starting  point  for 
developing  a  DRF  base.  These  platforms  are  mechanisms  for  coordination  and  policy  guidance  on 
disaster  risk  reduction,  are  multi-sectoral  and  interdisciplinary,  with  national  public,  private  and  civil 
society  participation15.  Some  elements  are  necessary  ex  ante,  (i.e.,  risk  assessments,  information  on 
insurance coverage, compensation rules, conditional compensation). Other elements only come into play 
after a disaster strikes: triggers and channels for resources mobilisation, funds disbursement. 

From  a  public  finance  perspective,  a  key  step  is  to  provide  relevant  DRF  information  in 
budget documents or annexes thereof. Such information can cover past disaster damages by type of 
hazard, estimates of losses and disaster contingent liabilities under different scenarios, earmarked funds 
or contingent reserves in the budget, the budget lines of main ministries that can be tapped in case of 
disaster. The presentation can be done directly in the annual budget, in the medium-term strategy, in a 
fiscal  risks’  section/statement  or  in  an  annex  to  the  budget.  All  such  budgetary  information  should  be 
public and easily accessible.  

An  important  element  of  DRF  transparency  is  availability  of  disaster  loss  data.  Such  data 
should be collected and made accessible in well-managed databases. A common challenge to DRM and 
DRF practitioners is that such data is rarely collected and made public. Private sector loss data is mainly 
reported  to  and  collected  by  private  sector  insurers,  while  public  sector  data  is  not  collected 
systematically  and  disaster-related expenditure is  not easy  to  track  or  monitor.  Member  States  should 
regard  such  databases  as  a  public  good  and  invest  in  building  them  to  contribute  to  a  more  resilient 
economy and to the sustainability of public finance over the longer term16. 

4.  CONCLUSION AND WAY FORWARD 

The aim of this discussion paper is to contribute to a shared understanding of the necessary 
DRF steps and stages of development. This exercise comes after several years of severe disasters 
affecting  EU  Member  States  and record-breaking weather  conditions.  Going  beyond  these  occurrences, 
climate change will lead to a baseline where heatwaves, forest fires, floods or droughts are no longer 
exceptional and unpredictable events. To take account of this change in paradigm, Member States would 
at least need to take stock of their practices and assess whether they are appropriate to meet the future 
material  and  financing  needs  from  disasters  while,  at  the  same  time,  striving  to  prevent,  reduce  and 
limit the burden on public finances. 

The paper proposes to consider new elements (conditional disaster compensation, leveraging 
existing  tools  to  reduce  the  administrative  burden,  institutional  arrangements,  etc.)  for  the 
design  and  implementation  of  DRF,  and  highlights  areas  relevant  for  national  authorities 

15 Sendai National Disaster Risk Reduction Platforms. 

16 The Risk Data Hub database collects disaster data (exposure, losses) for EU Member States from publicly available sources. It has been 
developed by the European Commission’s Joint Research Centre, is upgraded regularly to reflect progress and developments. 

16 

 
 
 
 
 
when assessing, developing or reforming their DRF approach17. Of particular importance are: data 
collection, risk assessments based on methods cleared by experts, cooperation with the private sector, 
budget  clarity  on  the  lines  that  can  be  mobilised  to  meet  post-disaster  financing  needs  and  strategic 
reflection  on  other  disaster  financing  solutions.  The  discussion  paper  also  looks  at  the  institutional 
arrangements that should form the environment in which DRF strategies are built and implemented. 

Current  DRF  practices  could  be  improved  to  follow  a  more  structured  and  articulated  logic 
across  steps  and  actors.  The  paper  considers  different  stages  of  development  (i.e.,  essential, 
intermediate, advanced) across four pillars previously mentioned, as a toolkit for Member States wishing 
to  assess  their  practices  and  work  on  less  developed  aspects.  At  the  same  time,  this  toolkit  is  not  a 
closed  option  product  as  national  evidence  is  very  diverse,  although  with  some  common  features  (i.e., 
shared  challenges  related  to  loss  data  collection  and  loss  estimates,  ad  hoc  approach  to  DRF, 
fragmentation).  Moreover,  in  terms  of  budgetary  arrangements  and  reporting,  the  options  available 
leave  space  to  national  specificities.  Finally,  beyond  addressing  country-specific  needs,  this  toolkit  is 
meant  to  evolve  and  reflect  new  methods  and  financial  instruments  designed  to  meet  the  increasing 
challenges posed by climate related and natural disasters. 

17 Radu, D., 2021. “Disaster Risk Financing: Main concepts and evidence from EU Member States”, European Commission Discussion Paper 
150. And: Radu, D., 2022. “Disaster Risk Financing: Limiting the fiscal cost of climate-related disasters”, European Commission Discussion 
Paper 174. 

17 

 
 
 
 
ANNEX 1 

Risk components 

Disaster  risk  is  expressed  as  the  likelihood  of  loss  of  life,  injury  or  destruction  and  damage  from  a 
disaster in a given period of time. 

A hazard is a process, phenomenon or human activity that may cause loss of life, injury or other health 
impacts, property damage, social and economic disruption or environmental degradation. Hazards may 
be natural, anthropogenic or socio natural in origin. 

Vulnerability is given by the characteristics determined by physical, social, economic and environmental 
factors or processes which increase the susceptibility of an individual, a community, assets or systems 
to the impacts of hazards. 

Exposure  is  given  by  the  situation  of  people,  infrastructure,  housing,  production  capacities  and  other 
tangible human assets located in hazard-prone areas. 

18 

 
 
 
 
ANNEX 2 

Types of Rapid onset disasters from natural hazards (World Bank DRR-PFM assessment tool) 

19 

 
 
 
 
 
 
ANNEX 3 

Guiding questions for a self-assessment of disaster risk-based budgeting practices: identifying the gaps 

Disaster  risk-based  budgeting  is  the  consideration  of  disaster  risks18  throughout  the  government’s 
budget cycle with the objective of reducing the impact of disasters. 

Do  you  practice  disaster  risk-based  budgeting?  Is  disaster  risk-based  budgeting  set  out  in 

1. 
relevant documents (e.g., legislation, political commitment, other)? 

Are  disaster  risks  considered 

/  medium-term  fiscal 
2. 
strategy/framework / line ministries’ annual plans and budgets / sub-national governments’ annual plans 
and budgets / annexes or reports that are produced during the budget cycle? 

in  your  national  annual  budget 

Do  you  have  methodologies  to  calculate  these  risks?  Are  the  disaster  risks  assessments 

3. 
integrated to the budget process? 

Do  you  have  legislation,  policy  or  guidance  discussion  papers  to  define  the  responsibilities  of 

4. 
budget users with respect to producing input on disaster assessments relevant for the budget?  

Is there a group/task force involving all relevant stakeholders (i.e., academia, insurance sector, 

5. 
relevant ministries, civil protection agencies) for disaster risk assessments and inputs for budgets? 

Is there a unit/department within the Ministry of Finance that identifies and quantifies disaster-

6. 
related contingent liabilities?  

Do  you  track  disaster-related  expenditure  (ex-post)  at  aggregate  level/by  main  expenditure 

7. 
item? 

Do  you  track  the  impact  of  disasters  on  government  revenue  (ex-post)  at  aggregate  level/by 

8. 
main revenue items? 

What reporting (in-year, annual or a different frequency) is available on disaster risks and their 

9. 
impact on government expenditure/revenue? Is this information public? 

Are disaster risks or disaster resilience goals considered in investment decisions by the Ministry 

10. 
of Finance, line ministries and sub-national governments? How? 

11. 

What financing instruments have you used after a disaster? 

12. 

Does the government insure any of its key public assets? 

Which  are  the  drivers  of  the  rate  of  insurance  penetration  in  your  country:  availability, 

13. 
affordability, enforcement? Is there a public disaster-linked insurance scheme in place? 

14. 

What are/would be the main challenges to disaster risk-based budgeting? 

18 Disaster risk is the potential loss of life, injury, or destroyed or damaged assets which could occur to a system, society or a community 
in a specific period of time, determined probabilistically as a function of hazard, exposure, vulnerability and capacity (UNRR). 

20 

 
 
 
 
 
REFERENCES 1 

DRMKC, 2017. “Science for Disaster Risk Management. Knowing better and losing less”. 

Scira Menoni for DRMKC: “Definition of the architecture of a platform and database to collect, store and 
query damage and loss data” for the Regional Civil Protection Directorate of Catalonia (Spain). 

Global Facility for Disaster Reduction and Recovery, 2013. “Post Disaster Needs Assessments. Volume A. 
Guidelines”. 

IMF, 2022. Armenia: Technical Assistance Report: Quantifying Fiscal Risks from Climate Change. 

Nordhaus, W., 2018. "Evolution of modelling of the economics of global warming: changes in the DICE 
model, 1992–2017," Climatic Change, Springer, vol. 148(4), pages 623-640, June. 

OECD,  2015.  “Disaster  Risk  Financing:  A  global  survey  of  practices  and  challenges”,  OECD  Publishing, 
Paris. 

Poljansek K., 2021. “Recommendations for national risk assessment for disaster risk management in EU: 
where  science  and policy meet”,  Version  1,  EUR  30596  EN,  Publications  Office  of the  European  Union, 
Luxembourg. 

Radu, D., 2021. “Disaster Risk Financing: Main concepts and evidence from EU Member States”, European 
Commission Discussion Paper 150. 

Radu, D., 2022. “Disaster Risk Financing: Limiting the fiscal cost of climate-related disasters”, European 
Commission Discussion Paper 174. 

Szewczyk, W. and al., 2020. “Economic analysis of selected climate impacts”. 

World Bank Group, 2023. “Romania Country Climate and Development Report”. 

21 

 
 
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