Cover: Improving the Financial Resilience of Public Entities and Individuals for Natural Disasters

Improving the Financial Resilience of Public Entities and Individuals for Natural Disasters

A Resource Guide for State and Local Government

Published Dec 11, 2023

by Noreen Clancy, Lloyd Dixon, Jessica Welburn Paige, Sam Morales, Brian Wong, Andrew M. Parker, Katherine Grace Carman


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Research Questions

  1. What can be done to help U.S. households, especially low-income households, absorb the financial impact of a disaster and build financial resilience to mitigate the impact of future disasters?
  2. Are there examples of innovative products and programs that have been used in the United States or abroad to help individuals and government manage the financial consequences of a disaster?

Individuals and state and local governments (public entities) incur losses associated with natural disasters. For individuals, there are costs associated with evacuating, possible periods of unemployment, and costs associated with physical damage caused by the event, much of which is uninsured loss. Similarly, public entities incur damage to public buildings and public utilities and tax base losses associated with reduced economic activity. Although an entire community experiences a natural disaster, low-income communities and communities of color are disproportionately vulnerable to the risks of natural hazards and encounter the most difficulty in recovering from disasters.

The U.S. federal government provides funds for disaster response and recovery for both individuals and public entities. However, federal assistance is limited, and financial gaps remain. The authors of this report do not make policy recommendations but rather provide a resource documenting programs and products that some communities have adopted to help improve individual and community financial resilience. Many of these products are available from the private sector, and others are programs developed by public entities or nongovernmental organizations. Improving the financial resilience of public entities and individuals after a natural disaster strengthens and speeds up a community's ability to recover.

Key Findings

  • Natural disasters in the United States have grown costlier and more frequent and are having a significant financial impact on U.S. households.
  • Although private insurance and federal assistance benefits provide help after a disaster, households still face gaps in coverage, and local governments also experience significant financial burdens after a disaster.
  • Three key factors contribute to economic vulnerability for vulnerable groups in the United States: housing costs, limited ability to cover unexpected expenses, and location and mobility challenges.
  • The private sector offers parametric insurance products to public entities to fill budget gaps created by disasters.
  • The private sector has also developed a variety of parametric insurance products for individuals.
  • Several state governments have created catastrophe savings accounts, which are tax-advantaged savings accounts that can be used to provide quick cash and cover out-of-pocket expenses after a disaster.
  • Community-based insurance models have been proposed that spell out various roles a local government or special-purpose district might take in arranging coverage for individual properties in the community.
  • Charities and nongovernmental organizations have developed innovative approaches for distributing assistance, including blockchain mechanisms for direct cash payments and forecast-based financing.

This research was sponsored by the Under Secretary of Homeland Security for Science and Technology and conducted in the Infrastructure, Immigration, and Security Operations Program of the RAND Homeland Security Research Division.

This report is part of the RAND research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.