Last Resort Insurance: Wildfires and the Regulation of a Crashing Market

Reid Taylor, Madeline Turland () and Joakim A. Weill
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Joakim A. Weill: https://joakimweill.github.io/

No 2510, Working Papers from Federal Reserve Bank of Dallas

Abstract: An increasing number of people are denied home insurance coverage in the private market and must instead turn to state-sponsored plans known as “Insurers of Last Resort.” This paper examines how insurers of last resort interact with the private market under increasing disaster risks. We first present a simple model of an adversely selected insurance market, highlighting that the insurer of last resort allows strict price regulation to be compatible with full insurance. We then empirically study the California non-renewal moratoriums, a regulation that forced insurers to supply insurance to current customers following wildfires in 2019 and 2020. Using quasi-random geographic variation in regulatory borders and a difference-in-differences strategy, we find that the moratoriums successfully reduced company-initiated non-renewals and cancellations in the short run. The effects only lasted for one year, with insurers dropping policies as soon as the moratorium lapsed. The moratoriums had no discernible effect on participation in the State’s insurer of last resort.

Keywords: insurance; natural disasters; wildfires (search for similar items in EconPapers)
JEL-codes: D22 G22 L10 Q54 (search for similar items in EconPapers)
Pages: 55
Date: 2025-03-26
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:99740

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DOI: 10.24149/wp2510

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