Why governments need a well-diversified financial system to deal effectively with natural disasters

economictimes.indiatimes.com:

risk exposure also increases. Natural disasters can cause massive damage to assets and investments in vulnerable areas. According to reinsurance company Munich Re, the total uninsured losses due to disasters in 2022 are estimated to be around $270 billion while insured losses are projected to be approximately $120 billion.

So, governments must prioritise investment in disaster preparedness and mitigation strategies to safeguard against these escalating costs. This was the theme of discussions at the Working Group on Disaster Risk Reduction (WGDRR) meeting in Chennai recently. WGDRR has been set up for the first time under G20.

India initiated these discussions, and the response from participating countries and international agencies was positive. The consensus centres on the importance of identifying and prioritising investments in disaster management to enhance long-term capacities. Countries must adopt a comprehensive risk management strategy to access resources from funding mechanisms to invest in response, recovery, reconstruction and mitigation.

This involves creating dedicated budgets for disaster risk-reduction efforts. A proactive approach to disaster-risk reduction minimises the economic cost of disasters, saves lives and ensures sustainable development. India has allocated ₹45,000 crore for the mitigation funds at the national and state levels (2021-26) for a new generation of hazard-mitigation programmes, focusing on earthquakes, landslides, floods and cyclones.