Efficiently reducing natural hazard risks requires a thorough understanding of the costs of natural hazards. Current methods to assess these costs employ a variety of terminologies and approaches for different types of natural hazards and different impacted sectors. This may impede efforts to ascertain comprehensive and comparable cost figures. In order to strengthen the role of cost assessments in the development of integrated natural hazard management, a review of existing cost assessment approaches was undertaken. This review considers droughts, floods, coastal and Alpine hazards, and examines different cost types, namely direct tangible damages, losses due to business interruption, indirect damages, intangible effects, and the costs of risk mitigation. This paper provides an overview of the state-of-the-art cost assessment approaches and discusses key knowledge gaps. It shows that the application of cost assessments in practice is often incomplete and biased, as direct costs receive a relatively large amount of attention, while intangible and indirect effects are rarely considered. Furthermore, all parts of cost assessment entail considerable uncertainties due to insufficient or highly aggregated data sources, along with a lack of knowledge about the processes leading to damage and thus the appropriate models required. Recommendations are provided on how to reduce or handle these uncertainties by improving data sources and cost assessment methods. Further recommendations address how risk dynamics due to climate and socio-economic change can be better considered, how costs are distributed and risks transferred, and in what ways cost assessment can function as part of decision support

This article examines available methods for assessing all types of drought costs, including both damage costs and costs arising from adopting policy measures to encourage mitigation of, and adaptation to, droughts. It first discusses damage costs, distinguishing between direct, indirect and non-market costs. Then it examines the suitability of existing methods for estimating drought costs in different economic sectors, their underlying theoretical assumptions, complementarity between different methods, and conditions relevant for their application. The latter include precision, ability to deal with future climate change risks, data needs and availability, and required financial and human resources. The article further considers potential policies for drought mitigation and adaptation and different cost types associated with them. It ends with providing recommendations for good practices regarding the use of methods as well as drought mitigation and adaptation policies.

The proposed ‘cost assessment cycle’ is a framework for the integrated cost assessment of natural hazard

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