The Economics of Climate Risk and Property Insurance
Paper Session
Monday, Jan. 4, 2027 10:15 AM - 12:15 PM (EST)
- Chair: Benjamin Keys, University of Pennsylvania
Pricing the Tail: New Data on Insurer Catastrophe Exposure and Reinsurance Prices
Abstract
We assemble new data from Florida regulatory filings on property insurers' modeled catastrophe losses and reinsurance contracts. Expected annual hurricane losses equal approximately one-third of homeowners premiums in our sample, while modeled 1-in-100-year losses are 9 to 15 times as large. Private reinsurance premiums average $5.57 per dollar of modeled expected payout, reaching $12.10 for layers covering losses beyond the 1-in-100-year level. The data document how the price of transferring catastrophe risk varies across the loss distribution and provide a foundation for studying insurers' risk management and the role of reinsurance costs in homeowners insurance pricing.Risk Reclassified: The Changing Geography of Homeowners Insurance Prices
Abstract
The past two decades have seen major changes in property insurance pricing and underwriting due to growing severe weather losses and technological progress in risk modeling. Increasingly granular and model-based pricing formulas have shifted the economic burden of property loss risk and changed incentives for investment in self-protection, especially for secondary perils like wildfire and severe convective storm (SCS). We compile spatially-detailed pricing information in several U.S. states over a 15-year period for the largest provider of homeowners insurance in the United States. We combine these data with demographic information to study four related questions. First, how have advances in catastrophe modeling affected insurer-assessed risk and calibrated premiums over space and time, especially for wildfire and SCS? Second, to what extent do observed premium changes reflect broad reassessments of underlying risk versus increasingly granular spatial classification? Third, are populations moving towards (or away from) locations that insurers classify as high risk? Fourth, how do insurers reward investments that reduce structure vulnerability, and to what extent can premium discounts offset rising modeled risk costs?Insurance and Sovereign Risk
Abstract
This paper assembles novel data on climate-related insurance products that protect sovereigns, combining information from both catastrophe bond programs as well as multi-country insurance pools. We study both the demand and supply sides of these markets. On the demand side, we document how sovereigns use parametric and damage-based contracts as hedging instruments, how these designs have evolved over time, and the distinctive tradeoffs they pose for pricing and coverage. More broadly, we show a rapid proliferation of sovereign risk-transfer mechanisms and highlight their growing role in macro-finance, especially for countries facing high climate risk (for example, small island states) and emerging markets. On the supply side, we characterize the insurers, reinsurers, and capital-market investors that provide this coverage. Our findings illustrate the increasing importance of incorporating insurance when assessing sovereign risk exposure, fiscal capacity, and climate risk management.Discussant(s)
Abby Ostriker
,
Boston University
Alexandru Barbu
,
INSEAD
Frances Moore
,
University of California-Davis
Nancy Wallace
,
University of California-Berkeley
JEL Classifications
- Q5 - Environmental Economics
- G2 - Financial Institutions and Services