How Natural Disasters Impact the Personal Finances of Americans
KEY POINTS
- Rising financial fallout: Severe weather financially impacted 19% of Americans in 2023, up from 13% in 2022.
- Credit score declines: Natural disasters lead to average credit score drops of 29 points for those with already poor credit.
- Increased debt collection: The percentage of people with debt in collections rose by 25% four years after a medium-sized disaster.
Natural disasters and severe weather events that exceed 1 billion dollars in damages are becoming more frequent and extreme. Those affected by these events can face significant disruptions to their finances. Recent studies show that people impacted by natural disasters have a higher chance of experiencing declines in credit scores and increases in debt and mortgage delinquency.
More Americans faced financial fallout from a natural disaster or severe weather in 2023 than any other year, according to data collected by the Federal Reserve. Thankfully, there are a number of tools and programs available before and after an extreme weather event that can cushion the financial blow of being impacted.
Nearly 20% of Americans were financially impacted by severe weather in 2023
Severe weather hit the wallets of a record 19% of Americans in 2023, up from 13% in 2022 and 16% in 2021, per data collected by the Federal Reserve.
Measuring the financial impact of severe weather in 2023, 2% said the impact was substantial, 5% said the impact was moderate, and 12% said the impact was slight.
Lower-income Americans, non-white Americans, and those living in the South were more likely to be financially impacted by severe weather.
Those findings make sense based on a study done by scholars from the Consumer Financial Protection Bureau, The Urban Institute, and Mathematica. They found:
- Natural disasters lead to declines in credit scores. Those with lower credit scores before the disaster and people of color tend to be most impacted. Credit scores for individuals with poor credit prior to the disaster dropped 29 points on average four years after a medium-sized disaster. Credit scores for people of color fell by 31 points on average four years after a medium-sized disaster.
- Natural disasters cause more people to fall into debt collection. The percentage of people with debt in collections rose by 25% four years after a medium-sized disaster. The average debt in collections increased by $2,014.
- Natural disasters increase mortgage delinquency and foreclosures. Following a disaster, residents of low-income and minority neighborhoods were more likely to fall into mortgage delinquency or face foreclosure.
For those in an already precarious financial situation, the data shows that natural disasters can have difficult long-term impacts on top of the short-term financial fallout of being hit by extreme weather.
Property damage is the most common financial impact from severe weather
Property damage is the most cited form of financial fallout from severe weather and natural disasters. Nine percent of Americans said they faced property damage due to those events in 2023.
Four percent said extreme weather caused income loss or work disruption, 2% needed to evacuate their home temporarily, and 1% reported long-term displacement from their home.
| In the past year, have natural disasters or severe weather events like flooding, hurricanes, wildfires, or extreme temperatures affected you in each of the following ways? | Percentage affected |
|---|---|
| Income loss or work disruption | 4% |
| Property damage | 9% |
| Needed to evacuate temporarily | 2% |
| Longer-term displacement from home | 1% |
| Other | 3% |
Homeowners insurance is the first line of defense against property damage resulting from a natural disaster or severe weather. Most policies cover damage from fires, hurricanes, tornadoes, and snow and deep freezes, but do not cover damage from earthquakes and floods.
13% have considered moving because of potential natural disasters
More Americans are taking steps to protect their property and finances from extreme weather by considering moving, changing their property to mitigate risk, or by purchasing additional insurance.
Thirteen percent of Americans in 2023 looked into moving due to the threat of natural disaster, up 1% from 2022. Eighteen percent made improvements to their property to reduce their risk, up from 14% in 2022. Five percent upgraded their insurance policy.
| In the past year, have you done each of the following at least partially because of the threat of natural disasters or severe weather events? | 2023 | 2022 | 2021 |
|---|---|---|---|
| Investigated other places to live | 13% | 12% | 12% |
| Improved your property to reduce risk | 18% | 14% | 14% |
| Purchased additional insurance | 5% | 5% | 5% |
Moving to a less disaster prone area can reduce the cost of homeowners insurance and make it less likely that extreme weather will strike.
Property improvements, like reinforced roofs and elevated foundations, can score discounts from property insurers and mitigate the impact of a natural disaster, if one strikes.
Purchasing more insurance does raise the cost of insurance, but comes with the benefit of reducing financial risk if disaster strikes. For example, expanded personal property coverage and loss of use coverage could make sense for someone living in a high fire risk area.
Natural disasters are becoming more frequent and costly
The average number of billion-dollar storms per year has been growing steadily over the past few decades and has accelerated since 2010.
Fifty-eight percent of the total cost of all billion-dollar weather events since 1980 has occurred since 2010. Sixty percent of all billion-dollar weather events have occurred since 2010, as well.
2017 was the most expensive weather year in the United States, driven by Hurricane Harvey and Hurricane Irma, which each cost over $100 billion.
The most common and costly types of severe weather and disasters
Tropical cyclones -- which include hurricanes -- have been the costliest type of natural disaster since 2014, resulting in nearly $700 billion in costs. The destructiveness of those storms is evident by the fact that they only make up 13% of all billion-dollar weather events over that period.
Severe storms made up 62% of all billion-dollar disasters from 2014 through July 2024, but accounted for just 22% of costs. There are relatively few billion-dollar wildfires, droughts, floods, winter storms, and freezes and their costs are low in comparison to hurricanes and severe storms, per NOAA.
From 2014 through July 2024. Billion-dollar disasters only.
| Disaster | Cost, billions | Percent of total cost | Count | Percent of total count |
|---|---|---|---|---|
| Tropical cyclone | $698 | 54% | 25 | 13% |
| Severe storm | $284 | 22% | 119 | 62% |
| Wildfire | $108 | 8% | 10 | 5% |
| Drought | $77 | 6% | 9 | 5% |
| Flooding | $71 | 6% | 19 | 10% |
| Winter storm | $53 | 4% | 9 | 5% |
| Freeze | $1 | 0% | 1 | 1% |
| Sum of all disasters cost | $1,292 | - | 192 | - |
The costliest natural disasters in history
Eight of the 10 costliest natural disasters in the United States are hurricanes, with Hurricane Katrina being the most expensive disaster, costing $200 billion.
Seven of the 10 most expensive natural disasters occurred after the year 2000 and six occurred after 2010. All were hurricanes. That trend points to climate change causing more intense and frequent storms.
| Event | Year | Cost (inflation-adjusted) |
|---|---|---|
| Hurricane Katrina | 2005 | $200 billion |
| Hurricane Harvey | 2017 | $159 billion |
| Hurricane Ian | 2022 | $119 billion |
| Hurricane Maria | 2017 | $114 billion |
| Hurricane Sandy | 2012 | $88 billion |
| Hurricane Ida | 2021 | $85 billion |
| Hurricane Irma | 2017 | $64 billion |
| Hurricane Andrew | 1992 | $60 billion |
| 1988 Drought and Heat Wave | 1988 | $54 billion |
| 1993 Midwest flooding | 1993 | $46 billion |
Which states have the most and least natural disasters?
Texas has experienced the most billion-dollar natural disasters and incurred the highest costs from 2013-2023. The state was hit by 94 separate billion-dollar weather events in that timeframe, costing $429 billion.
Florida, Louisiana, California, and North Carolina round out the top five states in terms of costs from billion-dollar storms. Georgia, Missouri, Illinois, and Utah make up the rest of the top five states by number of billion-dollar disasters.
New Hampshire has faced the fewest losses from billion-dollar weather events between 2013 and 2023, with costs adding up to just $2.3 billion over seven disasters. Alaska, Maine, Nevada, and Rhode Island make up the rest of the five states with the lowest costs from major severe weather events over that period.
The states that have faced the fewest billion-dollar natural disasters from 2013 to 2023 are Hawaii, Virginia, Alaska, Maine, and New Hampshire.
Homeowners insurance costs vary by state and county, with prices driven by natural hazard risk profiles.
Cost and count of billion-dollar natural disasters by state, 2013-2023
Who pays for the financial fallout from natural disasters?
Support and recovery funds disbursed after major natural disasters come from a variety of public and private sources, the largest usually being delivered through the Federal Emergency Management Agency (FEMA) Disaster Relief Fund (DRF), which is taxpayer funded. Congress appropriated $41 billion to the DRF in the 2023 fiscal year.
FEMA is also responsible for coordinating federal disaster relief, which can include responses from over a dozen federal agencies alongside state and local authorities.
Private insurance companies play a role in the financial recovery from disasters through the claims process. Nonprofit organizations provide immediate aid through food, shelter, and first aid, and can provide some long-term financial support as well.
How to financially prepare for and recover from natural disasters and severe weather
Natural disasters and severe weather bring short- and long-term financial downsides to those affected, from the immediate loss of property and disruption of work that can lead to longer-term negatives like declining credit scores and a higher risk of foreclosure. Preparation can go a long way toward mitigating the impact of a natural disaster, physically and on finances.
Understand your natural disaster and severe weather risk
The FEMA National Risk Index is an excellent resource to examine natural hazard risk and vulnerability at a county level. That knowledge can be used to guide decisions for where to rent or buy a home, insurance coverage, and potential property improvements.
Fortify your emergency fund
Consider bulking up your emergency fund past the recommended amount if you live in a particularly hazardous area. Those extra funds could be instrumental if you're forced to relocate or face a work disruption.
Check your insurance coverage
Ensure your insurance covers the disasters most likely to impact you and consider making improvements to your property that can result in homeowners insurance discounts. Most homeowners insurance includes hazard insurance, which covers losses from fire, wind, hail, lightning, storms, and smoke.
In some regions, homeowners insurance that covers wildfires is becoming more difficult or even impossible to obtain and a separate wildfire insurance policy may be necessary, for example. Separate flood insurance is required if you live in a high-risk flood zone and have a government-backed mortgage.
Make sure you have an itemized list of your belongings, along with pictures. That will help you determine what level of coverage you need and makes filing a claim easier, if it's necessary.
Understand disaster assistance programs
Dozens of government mitigation and recovery programs exist to help communities prepare for natural disasters. Understanding what programs you may be eligible for before disaster strikes can save time and stress if you're impacted.
Mitigation programs include grants and other funding for efforts that help reduce the impact of natural disasters. Recovery programs include compensation, loans, and other funding for families and businesses.
Preparing for a natural disaster, especially if you're in a high-risk area, can be well worth the time, effort, and money. Not only will being proactive about severe weather preparedness give you peace of mind, it can net you savings on homeowners insurance and increase your chances of being made whole if disaster strikes.
Sources
- Federal Reserve (2024). "Economic Well-Being of U.S. Households (SHED)."
- Journal of Housing Research (2020). "From Bad to Worse: Natural Disasters and Financial Health."
- NOAA (2024). "Billion-Dollar Weather and Climate Disasters."
Our Research Expert
Jack Caporal is the Research Director for The Motley Fool and The Motley Fool Ascent.
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