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Reported costs of natural hazards are at historically high levels, and are rising due to the ever increasing cost of events with large-scale effects.

The Thailand flood in 2011, for example, shut down scores of factories, damaging global car manufacturing and electronics industries. In 2013, Typhoon Haiyan in the Philippines caused many casualties and displaced thousands of people. Globally in 2013, natural hazards caused damage estimated at US$125 billion¹. Property damage has doubled about every seven years over the past four decades².

But such assessments generally do not reflect the complete set of costs of natural hazards, which comprise direct, business interruption, indirect, intangible and risk mitigation costs (see Box 1 for definitions). In fact, most assessments only account for direct costs, and even these are thought to be at least 50% higher than internationally reported³. Substantial indirect and intangible damage, caused, for instance, by disruptions of global supply chains or environmental and health impacts, are often neglected³.

Cost assessment is conducted for all relevant cost categories identified in phase 1. It aims to achieve comprehensiveness and avoid double-counting. Appropriate cost assessment methods are selected based on available overviews and guidelines⁷. Method selection depends on the specific properties of different cost categories and fields of application (for example, investments in structural measures, land use planning or insurance), as well as on relevant hazard types and sectors at risk. It needs to be decided whether it is necessary or helpful to include intangible costs in monetary terms or whether they should be considered in a non-monetary or qualitative way, for example, through multi-criteria approaches.

To account for changes in risk, scenarios for the future development of major risk drivers are created and used for assessing costs up to a specified time horizon. Potential changes in the cost estimates based on these scenarios are described, and their influence on the evaluation of risk mitigation measures (phase 3) is assessed. Uncertainties pertinent to the dynamic scenarios need to be quantified, clearly communicated and taken into account in the decision-making process¹¹.

Economic cost assessment supports the choice between alternative risk mitigation strategies. Cost assessment figures are integrated in decision-support frameworks, such as cost–benefit analysis, multi-criteria analysis and robust decision making^{11, 12}. They assist decision makers in evaluating different risk mitigation strategies under uncertainty. The choice between alternative decision-support frameworks and their associated decision rules, such as the weighting of evaluation criteria, should be made transparent to the decision makers. The choice made can substantially influence the results of an evaluation and the ranking of options.

When decision makers feel that uncertainties are too high to make a decision on pre-selected risk mitigation strategies, more detailed or precise cost estimates need to be achieved by putting more effort into data collection and modelling (return to phase 2).

Alternatively, additional criteria, such as robustness (performance of an option under different future scenarios), flexibility (ability to adjust a risk mitigation strategy according to future risk changes) and the precautionary principle (measures that are taken in the face of uncertainty to avoid harm to human health or the environment) can be considered in the evaluation of risk mitigation strategies^{11, 13}.

The continuous monitoring of the actual damage caused by natural hazards and the cost of their risk reduction should be established by the responsible authorities¹⁴. Although damage can only be recorded in the aftermath of natural hazard events, the expenditures for risk reduction can be collected continuously, for example, on an annual basis across the multiple levels of the administrations involved. Such evaluations of damage and risk mitigation costs should be fed into national and international open-access databases to improve the evidence basis for decision making. These data may then be used to update, improve, validate and adjust cost assessment models and cost estimates, which serve as inputs for phases 2 and 3. Furthermore, new information on the expected development of the major risk drivers is used to update the cost estimates (phase 2). It should be verified regularly whether such new insights or other developments are leading to necessary adjustments in the decision context of risk management (phase 1). Updated cost estimates are used for a new evaluation of risk mitigation strategies (phase 3). If necessary, decisions are revised, and the chosen risk mitigation strategies are adjusted.

Making better, more informed decisions for natural hazard risk management will become even more important under global environmental change. So far, such decisions are hampered by biased and uncertain cost estimates. The proposed framework for integrated, continuous cost assessment in natural hazard risk management throughout the new cost assessment cycle could provide more efficient solutions. It initiates the continuous monitoring of all damage and risk mitigation costs associated with climatic and other natural hazards. This enables the early assessment of the efficiency of risk mitigation strategies. The cost assessment cycle is linked to the risk management cycle, which has proved to be an effective framework for risk management². The resulting new, extended framework would allow more integrated cost assessment and improved decision making for natural hazard risk management.

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2. A Science Plan for Integrated Research on Disaster Risk: Addressing the Challenge of Natural and Human-induced Environmental Hazards (ICSU, 2008).
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The research was supported by the European Community's Seventh Framework Program through the Coordination Action Project 'Costs of Natural Hazards' (CONHAZ), Grant Agreement number 244159. This document reflects the authors' views only and not those of the European Community.