Risk, Insurance and Real Estate
Paper Session
Sunday, Jan. 4, 2026 10:15 AM - 12:15 PM (EST)
- Chair: Nitzan Tzur-Ilan, Federal Reserve Bank of Dallas
The Effect of Insurance Premiums on the Housing Market and Climate Risk Pricing
Abstract
Property insurance provides an important hedge against disasters, but distorted premiums can mute the pricing of disaster risks. We document that removing flood insurance subsidies precipitates a 2% average price decline, primarily concentrated in properties exposed to sea level rise. Our findings demonstrate that reducing premium distortions accelerates the incorporation of climate change risk in house prices. The house price effect is not fully explained by the cash flows from subsidy reductions, and indicates markets' increased perceptions of uninsured risks. Higher premiums reduce mortgage take-up as mandatory insurance becomes costlier, and encourage the rebuilding of homes, especially in risky locations.Credit When You Need It
Abstract
We estimate the causal effect of emergency credit on households' finances after a negative shock. We link application data from the U.S. Federal Disaster Loan program, which provides loans to households that have uninsured damages from a federally-declared natural disaster, to a panel of credit records before and after the shock. We exploit a discontinuity in the loan approval rules that led applicants with debt-to-income ratios below 40% to be differentially likely to be approved. Using an instrumented difference-in-differences research design, we find that credit provision at the time of a shock significantly reduces severe financial distress, decreasing the likelihood of filing for bankruptcy by 61% in the three years following the disaster. We explore mechanisms using additional quasi-experimental variation in interest rates, finding support for a liquidity-based explanation. Credit provision in a time of crisis has real consumption effects in the form of additional car purchases even 3 years after loan receipt. Our findings suggest that well-timed liquidity provided to households in acute need can have substantial and persistent positive effects.The Rise in Insurance Costs for Commercial Properties: Causes, Effects on Rents, and the Role of Owners
Abstract
Using a large and novel set of property-level operating statements for commercial properties, we analyze the causes behind the rise in insurance costs, its effects on rents and profits, and how property owners are managing it. First, we document a significant and persistent year-over-year increase in insurance costs across nearly all regions of the US over the last decade. 95% of individuals reside in counties where the increase in commercial insurance costs is at least double that of homeowner insurance costs, which we attribute to regulatory frictions in the homeowner insurance market using a border county-pair difference-in-differences design. Second, we provide evidence of three primary drivers of rising insurance costs: heightened pricing of local risk, a substantial increase in reinsurance costs, and cross-subsidization across states. Third, we find that, on average, 67% of the rise in insurance costs is passed through to rents; however, the passthrough to rent is concave and decreasing over time. Finally, we examine the role of property owners and find that: 1) larger owners are able to maintain lower insurance costs, 2) the impact of owner size on insurance costs are more pronounced in high-risk areas, and 3) owners with a property portfolio that has lower average risk have lower insurance costs, even holding the risk of a given property fixed. The advantage of larger owners in managing insurance costs in risky areas has grown in recent years, resulting in properties in high-risk regions being increasingly owned by larger owners. Our findings suggest that commercial property insurance pricing is influenced by both localized risk factors and broader systematic risk exposure, with risks extending beyond individual properties through insurers and property owners' portfolios.Discussant(s)
Ana-Maria Tenekedjieva
,
Federal Reserve Board
Matthew Gustafson
,
Pennsylvania State University
Anthony J. Cookson
,
University of Colorado-Boulder
Xiang Li
,
Fordham University
JEL Classifications
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location
- G5 - Household Finance