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Indonesia, with over 17,000 islands spanning 1,500 kilometers, has a history of earthquakes, tsunamis, volcanic eruptions, floods, and landslides. Located on the “Pacific Ring of Fire,” the country has 76 active volcanoes, recording over 3,000 natural disasters annually. From 2014 to 2023, the Government of Indonesia’s disaster risk management (DRM) spending ranged from approximately US$ 489 million in 2014 to US$ 6.9 billion in 2021. While pre-disaster spending has increased in recent years—reaching 77% of total DRM allocations in 2023—emergency response historically absorbed the largest share, accounting for over 70% of DRM expenditures in 2021. Over the ten-year period, DRM spending represented between 1.4% and 9.3% of total central government expenditure, peaking during the COVID-19 pandemic. These figures, however, likely underestimate the full fiscal burden of disasters, particularly when accounting for off-budget and subnational spending. Recognizing the importance of planning ahead to prepare for disasters, the Government of Indonesia has been investing in Disaster Risk Financing and Insurance (DRFI) solutions, and the country is a leading champion for DRFI globally.

To protect the government budget, the Ministry of Finance established the Pooling Fund Bencana (PFB [Pooling Fund for Disasters]), with support from a $500 million World Bank investment project and a US$14 million Global Shield Financing Facility (GSFF) grant to finance the start-up and operational costs of the PFB. The government provides annual allocations to the fund from its own budget and invests the principal to enable fund accumulation. Established to coordinate the DRFI landscape in Indonesia, the PFB serves as a centralized mechanism for channeling financial resources for disaster preparedness and response.

While it establishes all the necessary environmental and social safeguards to deliver post-disaster activities, the PFB will also finance preparedness investments such as premium subsidies for insurance products as well as initiatives to build risk awareness and build preparedness capacity. The PFB is envisioned to be a self-insuring vehicle, with a robust risk layering strategy. Looking forward, and once fully operational, PFB will expand its risk transfer products, thereby leveraging reinsurance and capital markets to expand its response financing capacity for high-severity shocks. Several regulations have been adopted to institutionalize this mechanism, which is also reflected as a Key Performance Indicator for the country’s Finance Minister, a key measure of sustaining this mechanism within the country. At present, the government is exploring the development of parametric insurance solutions for earthquakes and floods, to be financed through the PFB. 

To protect state assets, the government established a public assets insurance program (Program Asuransi Barang Milik Negara, ABMN). ABMN is an all-risk indemnity insurance program managed by the Ministry of Finance, with voluntary participation from line ministries, and supported by the World Bank. Since 2019, the program has transferred risks of almost 11,000 state-owned buildings (including education facilities, healthcare facilities, and government offices) to a consortium of more than 50 domestic insurers backed by international reinsurance. Payouts, for example after the 2020 Jakarta floods and the 2021 Mamuju earthquakes, have enabled line ministries to repair assets and minimize public service disruptions. GSFF funding facilitated a three-year renewal of the existing ABMN in 2023, and it will support its expansion to cover infrastructure assets. As of the end of 2024, claims processed under the renewed ABMN include:
•    IDR 2.5 billion for 28 assets: Fully paid by December 2024
•    IDR 5 billion for 15 assets: In progress and carried over to 2025
•    IDR 148 million for 7 assets: From 2025 only and currently in progress

Highlights

A US$14 million GSFF grant supports the start-up and operating costs of the Pooling Fund Bencana, the country’s central mechanism for financing disaster preparedness and response, and the cornerstone of Indonesia’s DRF strategy. PFB was activated in April 2025 after the government passed the master legislations for operationalizing the fund.

The pooling fund serves multiple purposes and will be used to finance disaster preparedness activities, provide contingency funding for emergency response, fund new DRF instruments, especially risk transfer, and renew and expand the existing state assets insurance program (Program Asuransi Barang Milik Negara, ABMN). 

To date, ABMN has provided coverage of US$2.4 billion. The program has made multiple payouts in recent months, providing coverage for approximately 50 damaged government assets.

Setting up a coordinated DRFI mechanism in a country and embedding it within government systems requires extensive time, effort, and capacity, often more than establishing a single product or instrument. Acting as a de-facto institution, such a mechanism requires: extensive stakeholder engagement and consultation across and outside of government; new regulations and changes to existing regulations to ensure the different entities involved have a legal mandate to perform the needed institutional functions; ongoing capacity building and awareness-raising for different stakeholders; and technical enhancement of implementing agencies to increase their knowledge of different financial solutions and ensure funds are deployed rapidly after disasters. In Indonesia, establishing the PFB has required day-to-day engagement and capacity building of various in-country stakeholders, made possible thanks to contributions from GSFF. This has undoubtedly led to strong country championship of the topic and continued prioritization within MoF, despite government changes and staff turnover.

GSFF resources are supporting the expansion of Indonesia’s DRFI capacity: 

•    Alignment with Indonesia’s overall DRFI landscape: GSFF support for PFB design and operationalization to protect the state budget; ABMN implementation and expansion; enabling a link between PFB and ABMN. 

•    Support for the national DRFI regulatory environment: Enabling the provision of technical inputs to ministerial-level and technical-level regulations for implementation of the PFB and ABMN programs.

•    Capacity building: Hands-on technical support on all aspects of design and implementation of the two solutions, with targeted capacity building sessions for developing PFB’s investment strategy, DRFI strategy, and Monitoring, Evaluation and Learning (MEL) approach, among others. Of note is the flagship program developed as a DRFI Executive Education Program in collaboration with the Bandung Institute of Technology, which will continue to deliver this going forward. Several knowledge visits were also organized for Government of Indonesia to Switzerland and Singapore, to learn from world class examples of risk management.