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

Workshop / Atelier Disaster Risk Financing and Insurance (DRFI) Financement et Assurance des Risques de Désastres Naturels

The proposed framework looks at evaluating the cost and timing of alternative sovereign DRFI strategies, which is a key (but not the only) factor for governments to consider when setting appropriate strategies to ensure financial resilience to disasters.  The results of the analysis can therefore assist in the decision-making process regarding which financial instruments are best suited to different layers of risk, although there are other considerations (such as political economy aspects) which are not captured by the analysis.

The results are intuitive and fairly robust to parameter assumptions, and are consistent across the case studies where the framework has been applied.  The framework provides evidence to support the tiered approach to sovereign DRFI, and provides a methodology for selecting the strategy which minimizes the long term average cost of financing disaster losses.

A key assumption in this framework is that a government’s contingent liability is known.  In order to understand the full costs and benefits of different sovereign DRFI strategies this analysis must be considered in the context of other components of the sovereign DRFI Impact Appraisal Project where this assumption is relaxed.