Natural Disasters and Insurance Markets
Paper Session
Saturday, Jan. 3, 2026 2:30 PM - 4:30 PM (EST)
- Chair: Mallick Hossain, Federal Reserve Bank of Philadelphia
The Hidden Inflation in Homeowners' Insurance
Abstract
Rising homeowners’ insurance prices and household coverage adjustments may leave households paying more for less protection. Using a novel anonymized dataset of mortgages linked to detailed insurance policies, we study the increase in the true cost of insurance and estimate household insurance demand elasticities. We construct a quality-adjusted price index that tracks the counterfactual price change of renewing the same policy terms from the existing insurer. Adjusting for quality, price growth is 8 percentage points higher than premium expenditure growth from 2013 to 2022. Demand elasticities for household deductible, nominal coverage limit, and insurer choice with respect to price changes are small. However, as nominal coverage remains flat and home values increase, coverage relative to structure value decreases as price increases. These sensitivities are larger when households purchase a home, refinance, or learn updated property values, suggesting that inattention and information frictions play a large role in the small elasticities that we estimate. Higher premiums can increase housing and debt service costs, while higher deductibles and lagging coverage expose households to both small and large expense shocks that can increase default risks and household wealth loss. Credit utilization results suggest that households self insure when faced with higher insurance costs, but we find no evidence for financial distress. Results related to inattention and information frictions suggest that behavioral nudges and frequent property assessments may be more effective reducing household exposure than price-based policies.Property Insurance and Disaster Risk: New Evidence from Mortgage Escrow Data
Abstract
We develop a new dataset to study homeowners insurance using over 74 million premiums from 2014–2024 inferred from mortgage escrow payments. We document rapidly rising premiums and a doubling of the pass-through from disaster risk into premiums. Using variation in correlated wildfire and hurricane exposure, we show that the increase in the risk-to-premium gradient was accelerated by a repricing of catastrophic risk in global capital markets. Premium increases are capitalized into home values, reducing home price growth by over $40,000 in the most exposed zipcodes. The premium and home price effects are larger in areas facing rising climate risk.Discussant(s)
Nam Nguyen
,
Stanford University
Cameron Ellis
,
University of Iowa
Daniel Hartley
,
Federal Reserve Bank of Chicago
JEL Classifications
- G5 - Household Finance
- Q5 - Environmental Economics