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  2. ASSA Annual Meeting
  3. 2026
  4. Program
  5. Climate Risk, Insurance and Financial Adaptation
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Climate Risk, Insurance and Financial Adaptation

Paper Session

Saturday, Jan. 3, 2026 10:15 AM - 12:15 PM (EST)

Loews Philadelphia Hotel, Regency Ballroom C1
Hosted By: American Finance Association
  • David Ng, Cornell University

Insuring Correlated Climate Risk: Evidence from Public Reinsurance

Adam Solomon
,
New York University

Abstract

Increasing climate risk has caused insurance in many locations to become unaffordable or unavailable. I study a novel policy response in Australian home insurance: government provided, mandatory, actuarially fair, reinsurance for cyclone damage. In this scheme, the government reinsures the cyclone risk, while the private market covers the remaining idiosyncratic risk. I find that public reinsurance leads to a 21% decrease in home insurance premiums and an 11% increase in the probability of insurance being offered at all. In terms of mechanisms, I rule out subsidization and show that the ambiguity of the risk has a minimal impact on premiums and insurance offerings. Instead, the entirety of the increase in insurance offered, and much of the decrease in premiums, comes from reducing the implicit costs associated with insuring spatially correlated risk. Increased competition due to insurer entry explains the remaining premium reductions. This isolates the cause of market dysfunction - correlated risk - and suggests that public reinsurance is a cost-effective policy to rehabilitate insurance markets for catastrophic climate risks.

The Hidden Cost of Climate Risk: How Rising Insurance Premiums Affect Mortgage, Relocation, and Credit

Shan Ge
,
New York University
Stephanie Johnson
,
Rice University
Nitzan Tzur-Ilan
,
Federal Reserve Bank of Dallas

Abstract

"As climate change exacerbates natural disasters, homeowners’ insurance premiums
are rising dramatically. We examine the impact of premium increases on borrowers’
mortgage, relocation, and credit outcomes using new data on home insurance policies for 6.7 million borrowers. We find that higher premiums increase the probability of mortgage delinquency, as well as prepayment. The prepayment effect is mainly driven by relocation. Movers with larger pre-moving premium increases achieve lager premium reductions. The results hold using a novel instrumental variable. The delinquency effect is greater for borrowers with higher debt-to-income ratios. Both delinquency and prepayment effects are present across GSE and non-GSE mortgages. Beyond mortgages, higher premiums also increase credit card delinquency and deteriorate borrower creditworthiness. Our findings unveil a channel through which climate change can threaten household financial health and potentially impact the stability of the financial system."

When Locking In Biodiversity Locks Up Land

Golnaz Bahrami
,
Pennsylvania State University
Matthew Gustafson
,
Pennsylvania State University
Eva Steiner
,
Pennsylvania State University

Abstract

We provide new evidence on how U.S. biodiversity protections affect land markets using a comprehensive, nationwide parcel-level panel of protection exposure, land values, and land use. Parcels at future protected-area borders show no preexisting differences or trends. After protection, newly protected parcels near borders experience roughly 50% declines in value relative to comparable unprotected parcels, driven almost entirely by losses on protected parcels rather than gains on unprotected ones. These effects are concentrated where development option values are highest and dissipate quickly with distance. Protections also substantially reduce development rates. The results underscore nuanced conservation-development trade-offs.

Global Currency Risk and Corporate Carbon Emissions

Po-Hsuan Hsu
,
National Tsing Hua University
Yan Li
,
The University of Hong Kong
Mark Taylor
,
Washington University in St. Louis
Zigan Wang
,
Tsinghua University

Abstract

We construct a panel of international firms with foreign revenues and carbon emissions to examine
whether their revenue-weighted exposures to foreign exchange (FX) volatility influence their emission
intensity. Firms facing higher FX risk release more carbon emissions in their own and upstream operations.
Identification tests based on regime changes in exchange rates and launches of FX derivatives support a
causal interpretation. Firms facing higher FX risk (i) reduce environmental investment and (ii) use new,
short-term suppliers, both leading to more emissions, especially when firms are financially constrained.
Finally, the FX effect is mitigated by FX derivatives usage and carbon taxation.

Discussant(s)
Pietro Bini
,
Cornell University
Parinitha Sastry
,
University of Pennsylvania
Simon Oh
,
Columbia University
Amy Huber
,
University of Pennsylvania
JEL Classifications
  • G0 - General