Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • 2021
  • Working Paper

Pricing of Climate Risk Insurance: Regulatory Frictions and Cross-Subsidies

By: Ishita Sen and Ana-Maria Tenekedjieva
  • Format:Print
  • | Language:English
ShareBar

Abstract

Homeowners’ insurance provides households financial protection from climate losses. To improve access and affordability, state regulators impose price controls on insurance companies. Using novel data, we construct a new measure of rate setting frictions for individual states and show that different states exercise varying degrees of price control, which positively correlates with how exposed a state is to climate events. In high friction states, insurers are more restricted in their ability to set rates and adjust rates less frequently and by a lower amount after experiencing climate losses. In part, insurers overcome pricing frictions by cross-subsidizing insurance across states. We show that in response to losses in high friction states, insurers increase rates in low friction states. Over time, rates get disjoint from underlying risk, and grow faster in states with low pricing frictions. Our findings have consequences for how climate risk is shared in the economy and for long-term access to insurance.

Citation

Sen, Ishita, and Ana-Maria Tenekedjieva. "Pricing of Climate Risk Insurance: Regulatory Frictions and Cross-Subsidies." Working Paper, January 2021.
  • SSRN

About The Author

Ishita Sen

Finance
→More Publications

More from the Authors

    • 2020
    • Faculty Research

    Institutional Corporate Bond Demand

    By: Ishita Sen, Lorenzo Bretscher, Lukas Schmid and Varun Sharma
    • 2019
    • Faculty Research

    Regulatory Limits to Risk Management

    By: Ishita Sen
    • 2020
    • Faculty Research

    Capital Regulation and Product Market Outcomes

    By: Ishita Sen and David Humphry
More from the Authors
  • Institutional Corporate Bond Demand By: Ishita Sen, Lorenzo Bretscher, Lukas Schmid and Varun Sharma
  • Regulatory Limits to Risk Management By: Ishita Sen
  • Capital Regulation and Product Market Outcomes By: Ishita Sen and David Humphry
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Digital Accessibility
Copyright © President & Fellows of Harvard College