Job Market Paper

Who Bears the Costs of Climate Change? Evidence from Catastrophes and Homeowners Insurance 

The paper studies how the costs of climate change are borne by households through the lens of catastrophes and homeowners insurance. Combining representative U.S. household survey data with state-level catastrophe shocks and insurer-level financial and rate-filing information, I first show that, surprisingly, households in catastrophe-shocked states do not experience a significant increase in homeowners insurance costs relative to those in unshocked states. This pattern varies with the stringency of state regulations over insurance rate changes. In shocked states with light regulation, households, on average, pay 14.9% more for homeowners insurance and are more likely to drop the insurance policy relative to the control group. However, no such effects are observed in shocked states with tight regulation, potentially because homeowners insurance costs in these states are partially shared by unshocked households. Then I provide evidence for this by constructing a novel state-level loss-sharing exposure index to capture insurers’ potential to shift losses from tightly regulated shocked states to unaffected states. On average, unshocked households with a one-standard-deviation increase in the exposure index pay 10.4% more for homeowners insurance, despite not being directly affected by catastrophes. The effect is stronger in states with light regulation and low market competition. Moreover, low-income households in shocked states with light regulation are disproportionately affected, being more likely to forgo the protection and facing higher homeowners insurance costs after a catastrophe. Overall, this study highlights the unequal sharing of the costs of climate change through the lens of homeowners insurance.

Presented at: Xiamen University, Zhongnan University of Economics and Law, 2025 Modern Risk Society PhD Seminar