Quantifying the role of insurance in tornado-impacted community recovery: a survey and simulation-based approach

Abstract

Insurance against disasters plays a critical role in community recovery by providing policyholders with reliable and timely payments for repairing or reconstructing damaged houses. By allowing homeowners to transfer risk, insurance enables homeowners to repair or reconstruct damaged houses without experiencing significant financial hardship. Although historical events have highlighted the importance of insurance, its quantitative impact on community recovery, particularly in tornado-impacted communities, is understudied. This study focuses on advancing our understanding of whether sufficiently insured houses can have a positive impact on the recovery of tornado-impacted communities (i.e., the main research question). This paper proposes a two-stage simulation framework to quantitatively evaluate the effects of insurance on community recovery. In the first stage of the framework, we developed statistical models to estimate homeowners' insurance decisions prior to a tornado event. In the second stage, we examined the effects of insurance on various aspects of community recovery. All the empirical and statistical models within the framework were developed based on the data collected from online surveys targeting residents whose properties were damaged by the tornadoes that occurred in May 2019 in the United States. Finally, the proposed simulation framework was applied to the City of Dayton, Ohio following those May 2019 tornado events to address the main research question. The results of the simulation concluded that sufficiently insured houses can have a positive impact on community recovery and highlighted the need for effective policies and economic incentives to encourage individuals to purchase insurance.