Understanding the impacts of government spending on retrofits and buyouts to mitigate regional and homeowner impacts from hurricanes

Abstract

Hurricanes cost lives, damage and destroy property, and devastate communities. Pairing mitigation tools with insurance improves resilience by reducing structural losses and speeding recovery. This study applies a computational framework to examine how retrofits, buyouts, and insurance can effectively be used to improve resilience. The framework simulates the interaction of decisions made by income-constrained homeowners and insurance carriers in a competitive market with different levels of mitigation spending by the government. Households make decisions to buy insurance, implement retrofits, and accept buyout offers. Their choices reflect property risk, prior experience with hurricanes, income, evolving insurance premiums, and government retrofit grants and buyout offers.

Our work focuses on single-family, wood-framed houses in eastern North Carolina, USA. The computational framework includes models that (1) simulate hurricanes; (2) estimate regional hurricane-induced losses from each hurricane based on an evolving building inventory; (3) incorporate homeowner behaviors; (4) interact insurance pricing with mitigation; and (5) describe the regional economy. We generate a set of 100 simulations in which the housing stock, stakeholder decisions, and hurricane damages are updated annually for 20 years to incorporate the dynamics created by the interactions between hazard events, structural damages, household and insurer decisions, and government-financed mitigation.

We experiment with different government spending levels on mitigation, paired with homeownersﾒ purchase of retrofits and wind and flood insurance to understand the regional economic impacts and homeowner effects. We compare the costs incurred by the government and homeownersﾒ spending to the benefits they receive, which include insurance claims paid, avoided structural loss from mitigation, and avoided GDP loss. When only insurance is an option, the net benefits over the 20 years total $26.9 billion. When insurance is offered and the government spends $50 million annually, the net benefits increase to $29.9 billion; if they spend $750 million annually, the net benefits increase to $36.9 billion.