Pricing of Climate Risk Insurance: Regulatory Frictions and Cross-Subsidies
Abstract/Contents
- 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.
Description
| Type of resource | text |
|---|---|
| Date created | September 9, 2021 |
Creators/Contributors
| Author | Sen, Ishita |
|---|---|
| Author | Tenekedjieva, Ana-Maria |
| Author | Tenekedjieva, Ana-Maria |
| Organizer of meeting | Diamond, Rebecca |
| Organizer of meeting | van Dijk, Winnie |
| Organizer of meeting | Schneider, Martin |
| Organizer of meeting | Tsivanidis, Nick |
Subjects
| Subject | climate risk |
|---|---|
| Subject | homeowners' insurance |
| Subject | price controls |
| Subject | financial regulation |
| Subject | cross- subsidization |
| Subject | financial institutions |
| Genre | Text |
| Genre | Working paper |
| Genre | Grey literature |
Bibliographic information
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- User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.
- License
- This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).
Preferred citation
- Preferred citation
- Sen, I. and Tenekedjieva, A. (2022). Pricing of Climate Risk Insurance: Regulatory Frictions and Cross-Subsidies. Stanford Digital Repository. Available at https://purl.stanford.edu/dd907py9336
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SITE Conference 2021
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