Property Insurance and Disaster Risk: New Evidence from Mortgage Escrow Data

Benjamin Keys and Philip Mulder

No 32579, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a new dataset to study homeowners insurance. Our data on over 47 million observations of households’ property insurance expenditures from 2014-2023 are inferred from mortgage escrow payments. First, we find a sharp 33% increase in average premiums from 2020 to 2023 (13% in real terms) that is highly uneven across geographies. This growth is associated with a stronger relationship between premiums and local disaster risk: A one standard-deviation increase in disaster risk is associated with $500 higher premiums in 2023, up from $300 in 2018. Second, using the rapid rise in reinsurance prices as a natural experiment, we show that the increase in the risk-to-premium gradient was largely caused by the pass-through of reinsurance costs. Third, we project that if the reinsurance shock persists, growing disaster risk will lead climate-exposed households to face $700 higher annual premiums by 2053. Our results highlight that prices in global reinsurance markets pass through to household budgets, and will ultimately drive the cost of rising climate risk.

JEL-codes: G21 G22 G52 Q54 R31 (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-agr, nep-env, nep-rmg and nep-ure
Note: EEE PE
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