Young scholars’ webinars: “The Costs of Hedging Disaster Risk and Home Prices in the Face of Climate Change”

Climate models predict that many natural hazards will become increasingly damaging and costly to insure as the effects of climate change manifest. We study how the cost of hedging disaster risk changes home prices by using a 2012 law that mandated flood insurance premium increases for properties discontinuously around flood zone boundaries and based on the timing of construction. With a triple-difference design, we find that homes that experience the largest increase in premiums experience the largest decline in home values. The effect is five times larger for homes that are exposed to sea level rise than those not exposed, suggesting that insurance pricing can accelerate the incorporation of climate risk in asset markets.