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Report
Barriers to household risk management: evidence from India
Cole, Shawn; Gine, Xavier; Tobacman, Jeremy; Vickery, James; Townsend, Robert M.; Topalova, Petia (2009-05-01)
Financial engineering offers the potential to significantly reduce the consumption fluctuations faced by individuals, households, and firms. Yet much of this potential remains unfulfilled. This paper studies the adoption of an innovative rainfall insurance product designed to compensate low-income Indian farmers in the event of insufficient rainfall during the primary monsoon season. We first document relatively low adoption of this new risk management product: Only 5-10 percent of households purchase the insurance, even though they overwhelmingly cite rainfall variability as their most ...
Staff Reports , Paper 373

Working Paper
CRE Redevelopment Options and the Use of Mortgage Financing
Glancy, David P.; Kurtzman, Robert J.; Loewenstein, Lara (2024-07-10)
A significant share of commercial real estate (CRE) investment properties—about half by our estimates—are purchased without a mortgage. Using comprehensive microdata on transactions in the US CRE market, we analyze which types of properties are purchased without a mortgage, highlighting the important role of renovation or redevelopment options. We show that mortgage-financed properties are less likely to be subsequently redeveloped, and that owners anticipate these redevelopment frictions and avoid mortgage financing for properties with greater redevelopment options. These effects were ...
Working Papers , Paper 24-15

Newsletter
How FAIR Plans Confronted Redlining in America
Nwokolo, Ramzee (2023-09)
Access to financial services, including insurance, is vital for the growth and development of communities. Without banks issuing residential mortgages and business loans, it is extremely difficult for people to purchase homes and grow their businesses. Without property insurance, banks will be reluctant to provide such loans. Thus, the inability to access property insurance makes communities more vulnerable to cycles of disinvestment and decline. In this Chicago Fed Letter, I examine the Fair Access to Insurance Requirements (FAIR) plans, how they addressed the issues of insurance ...
Chicago Fed Letter , Volume No 484 , Pages 8

Working Paper
Capital Constraints and Risk Shifting: An Instrumental Approach
Drexler, Alejandro; King, Thomas B. (2021-09-02)
When firms approach distress, whether they engage in asset substitution (risk shifting) or rebuild equity (risk management) may depend on their access to capital markets. The property-casualty insurance industry has two features that make it ideal for testing this hypothesis: (1) the main losses for insurers are exogenous events like hurricanes that provide a strong instrument for financial distress; and (2) many insurers are organized as mutual companies, which cannot issue stock. Consistent with the importance of capital constraints, stock companies issue new equity following a negative ...
Working Paper Series , Paper WP-2021-13

Working Paper
Model Uncertainty and the Pricing of Hurricane Risk in Florida
Heitfield, Erik (2026-03-23)
This paper examines how model uncertainty affects the price of homeowners insurance in Florida. We use unique data on expected loss rate projections from seven hurricane risk models approved by regulators for use in Florida property insurance rate filings to quantify model uncertainty. By combining these data with newly published information on local property insurance markets, we are able to empirically test the relationship between model uncertainty and insurance premiums across Florida ZIP codes and over time. Controlling for confounding variables and time-invariant latent factors that may ...
Finance and Economics Discussion Series , Paper 2026-016

Working Paper
Household Financial Decision-Making After Natural Disasters: Evidence from Hurricane Harvey
del Valle, Alejandro; Scharlemann, Tess C.; Shore, Stephen H. (2022-03-25)
Hurricane Harvey brought more than four feet of rainfall to the Houston area in August 2017, leading to substantial flooding in many areas. Using regulatory data with detailed information on borrowing terms, we compare the borrowing response to Hurricane Harvey in parts of Houston that were more and less affected by flooding. We find that hurricane-affected households borrowed in a price-sensitive and time-limited manner, relying almost exclusively on promotional-rate credit cards and mortgage forbearance for new credit and repaying balances quickly. We find that conditional on flooding, ...
Finance and Economics Discussion Series , Paper 2022-015

Working Paper
Last Resort Insurance: Wildfires and the Regulation of a Crashing Market
Taylor, Reid; Turland, Madeline; Weill, Joakim A. (2025-03-26)
An increasing number of people are denied home insurance coverage in the private market and must instead turn to state-sponsored plans known as “Insurers of Last Resort.” This paper examines how insurers of last resort interact with the private market under increasing disaster risks. We first present a simple model of an adversely selected insurance market, highlighting that the insurer of last resort allows strict price regulation to be compatible with full insurance. We then empirically study the California non-renewal moratoriums, a regulation that forced insurers to supply insurance ...
Working Papers , Paper 2510

Working Paper
Insurance, Weather, and Financial Stability
Kahn, Charles M.; Panjwani, Ahyan; Santos, João A. C. (2024-08-16)
In this paper, we introduce a model to study the interaction between insurance and banking. We build on the Federal Crop Insurance Act of 1980, which significantly expanded and restructured the decades-old federal crop insurance program and adverse weather shocks—over-exposure of crops to heat and acute weather events—to investigate some insights from our model. Banks increased lending to the agricultural sector in counties with higher insurance coverage after 1980, even when affected by adverse weather shocks. Further, while they increased risky lending, they were sufficiently ...
Finance and Economics Discussion Series , Paper 2024-067

Working Paper
Are the Borrowing Costs of Large Financial Firms Unusual?
Anderson, Christopher; Ahmed, Javed I.; Zarutskie, Rebecca (2015-03-12)
Estimates of investor expectations of government support of large financial firms are often based on large financial firms' lower borrowing costs relative to smaller financial firms. Using pricing data on credit default swaps (CDS) and corporate bonds over the period 2004 to 2013, however, we find that the CDS and bond spreads of financial firms are no more sensitive to borrower size than the spreads of non-financial firms. Outside of the financial crisis period, spreads are more sensitive to borrower size in several non-financial industries. We find that size-related differences in spreads ...
Finance and Economics Discussion Series , Paper 2015-24

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