The Effect of Insurance Premiums on the Housing Market and Climate Risk Pricing

with Ammon Lam and Ryan Lewis (Link) Revise & Resubmit at Journal of Finance

Property insurance provides an important hedge against disasters, but distorted premiums can mute the pricing of disaster risks. We document that removing flood insurance subsidies precipitates a 2% average price decline, primarily concentrated in properties exposed to sea level rise. Our findings demonstrate that reducing premium distortions accelerates the incorporation of climate change risk in house prices. The house price effect is not fully explained by the cash flows from subsidy reductions, and indicates markets' increased perceptions of uninsured risks. Higher premiums reduce mortgage take-up as mandatory insurance becomes costlier, and encourage the rebuilding of homes, especially in risky locations.

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Physical Climate Risk Factors and an Application to Measuring Insurers' Climate Risk Exposure

with Hyeyoon Jung, Robert Engle, and Xuran Zeng (Link) Revise & Resubmit at Review of Financial Studies

We construct a novel physical risk factor using a portfolio of REITs, long on those with properties highly exposed to climate risk and short on those with less exposure. Combined with a transition risk factor, we assess U.S. insurers' climate risk through operations and \$13 trillion in asset holdings. We measure insurers' climate risk exposure by estimating their stock return sensitivity (climate beta) to the physical and transition risk factors. We find that insurers operating in riskier regions tend to have higher physical climate betas, while those holding more brown assets are associated with higher transition climate betas. Using these betas, we calculate capital shortfalls under climate stress scenarios, offering insights into insurers' resilience to climate risks.

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The Hidden Effects of Climate Risk:

Rising Insurance Premiums Increase Mortgage Delinquency and Drive Relocation to Safer Areas

with Stephanie Johnson and Nitzan Tzur-Ilan (Link)

(ABC News, WSJ, WSJ x2, Financial Times, National Observer, Fox Weather)

As climate change intensifies natural disasters, homeowners' insurance premiums are rising dramatically. Using microdata on insurance policies linked to households' mortgage, credit, and relocation outcomes, and employing a novel instrumental variable, we document three main findings. First, higher premiums increase mortgage and credit card delinquencies. Second, to mitigate the impact of higher premiums, households are more likely to relocate, moving to safer locations with lower insurance costs. Homes facing larger premium hikes are more likely to be acquired by corporate buyers. Third, the delinquency effect is concentrated among financially more constrained households, while the relocation effect is stronger among less constrained households who can better afford the upfront costs of moving. Our findings reveal how climate change threatens household financial stability and potentially impacts financial system resilience through the insurance channel, while showing how households mitigate the effects through relocation to lower-risk areas.

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 Does Loan Securitization Expose Borrowers to Non-Bank Investor Shocks?---Evidence from Insurers

with Abhishek Bhardwaj and Saptarshi Mukherjee (SSRN Link, NBER Link)

CLOs fund 65% of syndicated loans, theoretically insulating borrowers from bank and idiosyncratic investor shocks. However, concentrated capital and sticky relationships expose firms to idiosyncratic shocks to insurers, the largest CLO investors.  We find that: 1) insurers experiencing favorable cash flows invest more in CLOs, especially with familiar managers; 2) CLO managers exposed to these cash flows launch more deals; 3) using an instrumentalvariable approach, affected firms take out more loans at lower spreads, increase employment, and expand operations; 4) effects are stronger for private than public firms. These findings reveal significant frictions in the loan securitization market.

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 How Do Health Insurance Costs Affect Low- and High-Income Workers?

with Janet Gao, Lawrence Schmidt, Cristina Tello-Trillo (Link)

Given that employer-sponsored health insurance constitutes a significant component of labor costs, we examine the causal effect of insurance premiums on worker outcomes across the income distribution. To address endogeneity concerns, we instrument premiums using idiosyncratic variation in insurers' recent losses, which is plausibly exogenous to worker outcomes. Analyzing US administrative data, we demonstrate that firms reduce employment following premium increases. Importantly, higher premiums adversely affect lower-income workers but not high-income workers. Following instrumented premium increases, low-income workers face higher risks of job separation, unemployment, large earnings losses, transitions to staffing arrangements, and reduced wage growth even when retained. In contrast, high-income workers experience minimal or opposite effects.

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 How Do Financial Conditions Affect Professional Conduct? Evidence from Opioid Prescriptions?

with Isil Erel and Pengfei Ma (SSRN Link, NBER Link) (FRA/JFE 2025 Conference)

We examine how healthcare providers' opioid prescriptions are affected by changes in their home values, which proxy for shocks to their wealth. We find that providers increase opioid prescriptions when experiencing adverse financial conditions. Results are robust to including provider office--year fixed effects and using the subsample of providers who live far away from their offices, thereby largely ruling out a patient--demand explanation.  Providers living in ZIP codes with price changes in the bottom half in 2007--2009 increased their opioid prescriptions in 2010-2012 by approximately 16% more than others. The effect is stronger among providers facing more provider competition and those serving vulnerable populations. Providers experiencing adverse financial conditions also receive more opioid-related payments from pharmaceutical companies. We also extend our analysis to ADHD medications, demonstrating a similar pattern of increased prescriptions under negative financial shocks, suggesting broader implications for other medical decisions. Our findings offer novel insights into professional conduct under personal financial pressure, with implications extending beyond healthcare.