THIS PAPER IS THE WINNER OF THE 2023 E-AXES FORUM RESEARCH PRIZE
This paper studies 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, the authors 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.
