Managing Disaster Costs
The increasing frequency and magnitude of climate-exacerbated hazards, coupled with the growing vulnerability of societies worldwide, are raising the financial costs of disasters. Governments finance a larger share of these costs through post-disaster measures. However, reducing risk and optimizing the allocation of pre-disaster resources can reduce the negative financial impacts on governments, writes Simon Aebi in this edition of the CSS Analyses in Security Policy series.
The Sendai Framework for Disaster Risk Reduction 2015–2030, adopted by UN member states in 2015, aims to reduce disaster risks and enhance resilience. The framework consists of voluntary and nonbinding recommendations for disaster risk management, placing significant emphasis on the management of disaster costs. The issue of disaster risk costs has become an increasingly discussed topic within the international disaster risk community following the continuous rise in disaster costs. The reinsurer Swiss Re estimates that insured losses have increased by 5–7 per cent annually since 1992 and that global economic losses due to natural hazards have reached 275 billion USD in 2022. Disasters stemming from natural hazards have become increasingly costly, whereas population growth, urbanization, and economic growth are significant drivers of societies’ higher susceptibility to financial losses. This trend is expected to continue, as the International Panel on Climate Change has again warned of global warming, which exacerbates the frequency and magnitude of climate hazards such as heat waves, storms, wildfires, and floods. Consequently, Sendai’s third priority calls on governments to invest in disaster risk reduction measures to address the increasing costs of disasters. Additionally, the fourth priority highlights the importance of funding mechanisms to support the social and economic recovery after a disaster has occurred. The goal is to reduce risk to an acceptable minimum. Nevertheless, risks and their costs can never be fully mitigated, and some residual risk will remain. It is therefore crucial to understand how the financial management of disaster risks supports risk reduction and the management of the costs that arise.