Evaluating a model’s appropriateness for climate & disaster risk finance decision making

This guidance note provides a framework to guide government officials in evaluating whether a climate or disaster risk model is fit-for-purpose for climate and disaster risk financing (CDRF) decision-making. It explains how catastrophe risk models are used to quantify the potential impact of floods, tropical cyclones, earthquakes and other hazards, and outlines a step-by-step evaluation framework covering qualitative assessment, exposure evaluation, event set characteristics, hazard parameter evaluation, damage function evaluation, correlation, historical loss analysis and future climate risk evaluation. The framework is designed for policy-makers and can also support governments in developing institutional capability in model evaluation.

The note states that model evaluation is essential to confirm that a model has been robustly designed and developed and provides a reliable representation of risk, including credible loss estimates. It emphasizes transparency, documentation, comparison against historical observations and loss data, and understanding assumptions, limitations and uncertainty. The publication concludes that the framework provides governments with a step-by-step approach to evaluating risk models and supports the reliability of key CDRF metrics used for disaster risk financing strategies, financial instrument design and broader risk-informed financial decision-making.