Ex-ante evaluation of the cost of alternative sovereign DRFI strategies

The increasing frequency and severity of climate extremes has forced governments to consider new ways of meeting the financial consequences of natural disasters, and there is a growing interest in implementing sovereign Disaster Risk Financing and Insurance (DRFI) programs in an attempt by governments to be financially prepared for when disasters occur. This has resulted in tremendous growth in the number and type of financial and budgetary instruments available, ranging from disaster reserve funds and lines of contingent credit to insurance instruments, but to date limited attention has been given to developing and implementing a coherent quantitative framework for appraising the true economic cost of these various instruments. Therefore at present, governments have no way of determining whether the programs and financial strategies they are employing are appropriate and efficient bearing in mind the risks they face.