Natural hazards pose great risk to the environment and population. In recent periods occurrence of natural disasters increased significantly due to climate change. Floods, earthquakes, tsunamis, hurricanes, and extreme rising/falling in temperatures are most common in occurrence. The disruptive nature of disasters can hardly be predicted and generated losses can rise very high. Due to that, fiscal risks take place representing deviations of expected outcomes with macroeconomic shocks often converting indirect liabilities into direct ones. Natural disasters represent financial burden for state budget as a main source of financing and risk management is crucial for overcoming such situations. The aim of this work is to provide comprehensive overview of natural disaster effects on the economy, both direct and indirect impact as well as impact on population and role of insurance in such scenarios. Fiscal risks and sources of funding will be analyzed with special emphasis on earthquake policies. The paper will examine fiscal risks that natural disasters pose and sources of funding due to dealing with the reparation of damages after the catastrophe. Main focus of the thesis will be representation of insurance and risk management on the example of the city of Zagreb and its recent earthquake. It is the biggest one since 1880, and the disruption caused is enormous for a small country as Croatia. Reparation plan and financial stability of the city will be discussed, as well Croatia overall. Some of the important questions regarding Reparation law of the city of Zagreb, funding of reconstruction for the damaged city parts, sources of funds and overall insurance coverage across the population regarding earthquake policies will be examined.