Household Financial Resilience after Severe Climate Events: The Role of Insurance 

Abstract

Severe climate events pose an increasing threat to households' financial well-being. Households affected by these events can face a significant financing challenge as disaster expenses and damages may exceed tens or even hundreds of thousands of dollars. We review the existing literature to describe how households fund recovery, with a focus on the role of insurance. While insurance is a key financial tool for managing such large losses, many households are uninsured and rely on a patchwork of savings, credit, federal assistance programs, and help from family and friends. Low income households and racial or ethnic minority households have more limited access to recovery funding. Households who are unable to fund repairs appear at greater risk of financial distress in the years after the disaster. Our findings highlight the importance of disaster insurance and motivate a comprehensive view of financial recovery where income and race play critical roles.

Keywords: Disaster Recovery, Insurance Economics, Household Finance, Climate Risk