Publications
Publications
- 2022
- HBS Working Paper Series
Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies
By: Ishita Sen, Ana-Maria Tenekedjieva and Sangmin Oh
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; Price Controls; Financial Regulation; Cross-subsidization; Climate Change; Household; Insurance; Price; Governance Controls; Financial Institutions; United States
Citation
Sen, Ishita, Ana-Maria Tenekedjieva, and Sangmin Oh. "Pricing of Climate Risk Insurance: Regulation and Cross-Subsidies." Harvard Business School Working Paper, No. 24-077, June 2024. (Revise and Resubmit, Journal of Finance. SSRN Working Paper Series, No. 3762235, June 2022)