The Disaster Risk Financing (DRF) TWG was established in 2019 in response to a need to better understand the current landscape of existing disaster risk financing mechanisms available to the region and the gaps.

Strengthening financial resilience and preparedness for disasters and slow-onset hazard events requires a strategic approach to risk financing. This approach must consider both the potential frequency and severity of different events and risks. The effectiveness of risk financing instruments in relation to different risks can be significantly improved when different types of instruments are combined strategically to help maximise coverage and reduce gaps in protection.

Governments need financing to meet a variety of disaster risk-related needs. These resources are required at various times for disaster prevention, preparedness, response and recovery. The amount of resources needed at these stages will vary, as does the cost of capital. These financial resource needs can be broadly broken down into ex-ante financing needs (for which resources are spent before an event takes place) and ex-post needs (for which resources are spent after an event occurs).

While the cost associated with ex-ante and ex-post financing needs are borne at different points, they should both be considered before an event occurs, during the drafting of the DRF strategy and DRM plan. DRF planning ensures that the risk financing tools that are ultimately selected are the most appropriate and cost-effective given the need.