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Financial Management of Flood Risk

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Disasters present a broad range of human, social, financial, economic and environmental impacts, with potentially long-lasting, multi-generational effects. The financial management of these impacts is a key challenge for individuals and governments in developed and developing countries. G20 Finance Ministers and Central Bank Governors and APEC Finance Ministers have recognised the importance and priority of disaster risk management strategies and, in particular, disaster risk assessment and risk financing. The OECD has supported the development of strategies for the financial management of natural and man-made disaster risks, under the guidance of the OECD High-Level Advisory Board on Financial Management of Large-scale Catastrophes and the OECD Insurance and Private Pensions Committee. This work has included the elaboration of an OECD Recommendation on Good Practices for Mitigating and Financing Catastrophic Risks and a draft Recommendation on Disaster Risk Financing Strategies  The Financial Management of Flood Risk extends this work by applying the lessons from the OECD’s analysis of disaster risk financing practices and the development of its guidance to the specific case of floods.

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Executive summary

Flooding is one of the most common, widespread and destructive natural perils, affecting approximately 250 million people and causing USD 40 billion in losses on an annual basis. The increasing accumulation of assets in floodplains and coastal zones, combined with the expected impacts of climate change on precipitation patterns and sea levels, are likely to lead to increasing losses in the future. As a result, significant policy attention is being focussed on finding ways to effectively manage the financial impacts of flood risk, considering the roles of investments in risk reduction as well as mechanisms for transferring flood risk. Insurance and other risk transfer tools can make an important contribution to the financial management of flood risk by spreading the risk across domestic and international (re)insurance and capital markets and reducing the share of losses absorbed by households, businesses and governments.

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