Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies

92 Pages Posted: 2 Mar 2021 Last revised: 28 Dec 2022

See all articles by Sangmin Oh

Sangmin Oh

University of Chicago - Booth School of Business; University of Chicago - Department of Economics

Ishita Sen

Harvard University - Harvard Business School; affiliation not provided to SSRN

Ana-Maria Tenekedjieva

Board of Governors of the Federal Reserve System

Date Written: December 22, 2022

Abstract

We study the consequences of state-level price (rate) regulation for U.S. homeowners’ insurance, a $15 trillion market that provides households protection against climate losses. Using two distinct identification strategies and novel data on regulatory filings and ZIP code level rates, we find that insurers in more regulated states adjust rates less frequently and by a lower magnitude after experiencing losses. Importantly, they overcome these rate-setting frictions by adjusting rates in less regulated states, consistent with insurers cross-subsidizing across states. In the long-run, these behaviors lead to a decoupling of rates from risks, implying distortions in risk sharing across states.

Keywords: Climate Risk; Homeowners' Insurance; Rate Regulation; Cross-subsidies; Insurance Availability.

JEL Classification: G22, G52, G28, G32, Q54

Suggested Citation

Oh, Sangmin and Sen, Ishita and Tenekedjieva, Ana-Maria, Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies (December 22, 2022). Available at SSRN: https://ssrn.com/abstract=3762235 or http://dx.doi.org/10.2139/ssrn.3762235

Sangmin Oh

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Ishita Sen (Contact Author)

Harvard University - Harvard Business School ( email )

Soldiers Field
Baker Library
Boston, MA 02163
United States

affiliation not provided to SSRN

Ana-Maria Tenekedjieva

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
690
Abstract Views
4,006
Rank
57,381
PlumX Metrics