⬅️ Back to list of blog posts

This entry pertains to the NBER Insurance Working Group Spring 2025 Meeting. I summarize the presentations that I listened to, followed by some general reflections.

Introduction

The NBER insurance working group meeting brought me to Cambridge for two days where I had time to enjoy a Chinese hot pot with my colleague Xuelin Li, followed by a long walk from Boston University to the Royal Sonesta. Walking along the Charles River turned out to be—shocking, I know—way nicer than walking along the Hudson.

Morning Session

• Stephanie Johnson (Rice) presented “The Hidden Cost of Climate Risk: How Rising Insurance Premiums Affect Mortgage, Relocation, and Credit” (with Shan Ge and Nitzan Tzur-Ilan). The intuition is that higher premiums tighten household liquidity and push financially constrained borrowers into default or moves. I found the relocation results especially interesting: as interest rates rose, much attention focused on mortgage lock-in—but if households are this responsive to insurance shocks, maybe insurance should be part of the total cost of homeownership that drives mobility.
• Philip Mulder (Wisconsin) presented “Property Insurance and Disaster Risk: New Evidence from Mortgage Escrow Data” (with Benjamin Keys), which uses a large new dataset based on escrow payments to measure insurance premiums and shows that recent premium increases are concentrated in high-risk areas, largely due to rising reinsurance costs. One interesting note is that the paper defines disaster risk as expected loss (E[L]), which differs from the notion of disaster risk in asset pricing a la Barro, Gabaix, and Wachter. The emphasis on reinsurance was reminiscent of Froot’s work, though it was clear from the discussion that more work is needed to unpack the frictions driving the reinsurance price dynamics.
• Ana-Maria Tenekedjieva (Federal Reserve Board) presented “Climate Risk and the U.S. Insurance Gap: Measurement, Drivers, and Implications” (with Parinitha Sastry, Ishita Sen, and Therese Scharlemann), which uses detailed household-level data and quasi-experimental variation to show that financially constrained households reduce coverage when premiums rise, while unconstrained households borrow more to maintain coverage. The paper highlights how climate-driven premium shocks increase mortgage risk both by pushing up household leverage and by worsening under-insurance. This raises an interesting question: if rising premiums are clearly predictive of future credit risk, why don’t mortgage underwriting standards adjust in response? Perhaps it's a race between which side—banks or insurers—is more responsive.

Afternoon Session

• Anran Li (Cornell) presented “Reinsurance, Financial Frictions, and Subsidy Efficiency: Evidence from Health Insurance” (with Paul Kim), which studies how financial frictions faced by health insurers shape the pass-through and welfare effects of public reinsurance subsidies. The key result is that reinsurance subsidies can generate a pass-through greater than one—lowering premiums by more than the government’s own outlay—because they relax insurers’ effective risk constraints. Pietro Tebaldi (Columbia) gave an excellent discussion; I agreed with his comments on the modeling choices around financial frictions (or risk constraints, which are isomorphic).
• Eduard Boehm (LSE) presented “Intermediation, Choice Frictions, and Adverse Selection: Evidence from the Chilean Pension Market,” which estimates a dynamic model of product and intermediation choice in the Chilean annuity market, where retirees must navigate a complex and high-stakes decision. The paper finds that while intermediaries steer many retirees toward annuities—often misaligned with their preferences—the distortion is limited because annuity menus are rich enough to allow for close substitutes to the optimal product. Throughout, I found myself wondering about competition across intermediaries—especially along non-price dimensions like reputation—but the author noted at the end that he abstracted from this. Still, the setup offers a helpful lens for thinking about disclosure and advisor regulation.
• Honglin Li (Wisconsin) presented “Experience Rating and Moral Hazard in Insurance Markets” (with Hao Zheng), which studies a Chinese policy reform that tightened experience rating in auto insurance and finds it reduced both risky driving and the filing of small claims. The model distinguishes ex-ante and ex-post moral hazard, showing that the welfare gains from fewer accidents outweigh the loss in risk protection. The presentation was very polished—as expected for a job market paper. I was curious how experience rating affects insurers' loss assessments: while pricing typically reflects average expected losses across a portfolio, experience rating responds elastically to individual shocks, which may complicate how insurers aggregate and forecast — and ultimately price — risk.