Pakistan faces a plethora of natural disaster risks, which include floods, droughts, earthquakes, tropical cyclones, heat waves and glacial lake outburst floods, making it one of the top ten countries in the world most exposed to a wide range of natural disasters. The increasing frequency and severity of disasters, exacerbated by limited coping capacity, has historically been a major fiscal challenge for the government. Although a comprehensive Disaster Risk Management Regulatory and Institutional Framework is in place but its focus is primarily on Disaster Risk Reduction measures & Post-disaster Operations, with Disaster Risk Finance, remaining the missing link. As a result, most of the large natural disaster risks are still being retained on government books with negligible budget allocations. This huge funding gap is aggravated by a severe protection gap, created by the low insurance penetration in the country, which stands at a mere 0.87% of its GDP. Whereas natural disaster insurance premium written primarily for the financial sector, amounted to PKR 48.8 billion for the year 2022, the total inclusive insurance premium was PKR 4.3 billion with only 17.5 million insured lives.[1] 

Fully cognizant of the rising fiscal pressure caused by the absence of disaster risk finance instruments, and increasing vulnerable population, the government has recently approved the National Disaster Risk Financing Strategy (NDRFS)) which recommends the deployment of sovereign and private sector risk transfer instruments for fiscal resilience. The launch of ‘Pakistan Diagnostic Summary Report’ by IRRF, demonstrates its commitment to support this important government initiative, by presenting a high- level overview of the current status of inclusive insurance and disaster risk financing in Pakistan, along with a set of recommendations, which aim to facilitate informed decision making by policy makers.

1. Unlocking the potential of micro and inclusive Insurance in Pakistan-SECP, 16/04/ 2024