When one-third of Pakistan was submerged during the catastrophic floods of 2022 and economic losses exceeded $30 billion, the critical question was not just how to rebuild but how to pay for it. In the absence of pre-arranged financial mechanisms, Pakistan had to divert funds from essential social sector budgets and rely heavily on uncertain and cost heavy international donors.

This reactive approach to disaster financing is a costly cycle. Effectively jeopardizes development gains and pushes vulnerable households deeper into poverty.

Against this background, a comprehensive disaster risk management (DRM) approach is no longer just an economic necessity but a moral responsibility. While the framework for such an integrated system is slowly emerging, it still lacks key components.

Effective DRM demands continuous investments in early warning systems, risk-informed land-use planning, resilient infrastructure, and community preparedness. But equally critical, it must be paired with a robust disaster risk financing (DRF) mechanisms, including tools like insurance, pool funds, contingency funds, and catastrophe bonds. Separately, each of these elements is useful but together, they can be transformative.

Like in many developing countries, uptake of disaster risk transfer instruments in Pakistan has been slow. Structural barriers include an under-developed insurance sector, weak regulatory frameworks, data availability and access challenges and an overarching absence of risk-financing culture.

On top of this, private insurers are often unwilling or unable to enter markets exposed to high levels of diverse and unpredictable disaster risks. Even the sector........

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