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Title Analysis of Disaster Relief Aid Programs and Public Finance Needs

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Analysis of Disaster Relief Aid Programs and  Public Finance Needs

Published on November 25, 2019
Published by Administrative Cost Estimates Division of Estimates & Tax Analysis Department

This report examined the trends of natural disasters and damages suffered from them, as well as the status of the disaster relief aid programs in place to better respond to changes in the disaster management environment. In particular, major issues and public finance needs were analyzed and implications were derived focusing on disaster relief funds and storm and flood insurance, because they are the two areas that attract high public interest and are currently being debated in the National Assembly.

Natural disasters and damage from them sustained nationwide in the last 10 years (2008-2017) average KRW 348.6 billion annually. What is at issue is natural disasters becoming more destructive with increased intensity, due to elevated uncertainties of climate change. Especially in a country where the government plays a critical role in natural disaster management, more efforts should be placed on estimating potential devastation in monetary terms caused by natural disasters in advance to minimize their impact preemptively.

To assess the current state of disaster relief assistance programs being implemented, disaster relief funds and storm and flood insurance were reviewed among others. Over the last 10 years (2008-2017), disaster relief funds were paid out on an annual average of KRW 93.153 billion, and the premium paid by the government to private insurers towards storm and flood insurance in the last five years (2014-2018) was an annual average of KRW 18.906 billion. In relation to this, there are ongoing discussions regarding the expansion of disaster relief aid, such as increasing disaster relief funds and making storm and flood insurance mandatory following the earthquake that wreaked major havoc on Pohang, etc.

In this regard, this report conducted analysis of public finance needs for two major issues related to disaster relief assistance, namely the “potential increase in climate change-driven natural disasters and impact,” as well as “discussion of expanding disaster relief aid.”

Given the potential impact of climate change, financial damages between 2020 and 2060 are estimated to incur up to KRW 11.4794 trillion (based on current 2019 values) per annum. This is 1.4 times more than the KRW 7.9891 trillion - the highest amount of financial damage incurred in 2002 from natural disasters between 1917 and 2017. The estimated KRW 833.5 billion of disaster relief funds (assuming the current level of funds will be maintained) are expected to cover the natural disaster damages amounting to the aforementioned annual estimate of KRW 11.4794 trillion. This is approximately nine times more than the annual average disaster relief funds of KRW 93.2 billion for the last 10 years (2008-2017) and roughly double the 2012 disaster relief funds of KRW 480 billion.

In the discussion of options related to the expansion of disaster relief assistance, additional public finance needs for disaster relief fund increases and compulsory purchase of disaster insurance coverage were analyzed. If disaster relief funds are increased to help earthquake-damaged homes, an annual average of KRW 18.955 billion in government expenditures is expected, while an additional annual average of KRW 4.284 billion in government expenditures – the lowest amount required among the public finance options discussed - will occur if storm and flood insurance purchases become mandatory for those in earthquake prone areas.

Inherently, making forecasts is not an easy task when it comes to natural disasters and their impact. However, increasing efforts should be exerted towards plausible disaster-related estimations on condition that they are based on a set of valid hypotheses. Specifically, given the level of public interest, it is crucial that public finance needs be identified and analyzed in regards to disaster relief aid.

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