Improving household and community disaster recovery: Evidence on the role of insurance

Abstract

We study the role of insurance in improving household and community disaster recovery. Our analysis harnesses both a unique survey of residents impacted by four land-falling hurricanes in the United States and foot traffic data on visits to local businesses. Households sort into two groups when it comes to financing recovery: those primarily using property insurance and those largely uninsured, instead relying more on friends and family. Insurance improves households' ability to participate in the local economy. Postflood visitation rates to many local businesses increase with greater flood insurance take-up rates. Expanded participation in the local economy is consistent with insurance reducing financial constraints; indeed, insured households are less likely to report experiencing high financial burdens in both the short and longer-run postdisaster and are less likely to have unmet funding needs. Despite this, motivating the purchase of disaster insurance remains challenging, particularly among low-income households who perceive insurance as less useful.