Modeling the indirect and fiscal risks from natural disasters for informing options for enhancing resilience and building back better
This paper suggests the need to distinguish between distinct risk layers for which different risk management options would be preferable. The model used distinguishes between four layers comprised of: 3 1. Frequent, low‐consequence risk, for which assessments have shown that risk reduction holds great potential for managing risk at this lower level; 2. Medium‐layer risks, for which risk reduction will often be integrated with insurance and other risk‐financing instruments; 3. Rare, catastrophic events, for which international assistance will be necessary as domestic coping capacity is exceeded; 4. A very high‐level risk layer, for which even the capacity of international donors and financial institutions can be exceeded over time (e.g., with strong climate warming, extreme event risk may exceed the capacity of the international system to respond, which signals a need to undertake stringent greenhouse gas reduction efforts). The CATSIM model was developed to understand and identify these layers by conducting stress testing that identifies thresholds. CATSIM can then be employed to help understand policymakers’ needs for devising public risk management and financing strategies in both a pre‐ and post‐disaster context. Finally, national‐level assessments can be combined to global or regional‐level estimates to evaluate financing needs of regional and global pools.