TEN EASY STATS FROM ' PRICING OF CLIMATE RISK INSURANCE : REGULATION AND CROSS-SUBSIDIES '
1 . Rising Natural Disasters : Natural disasters have led to over US $ 600bn in catastrophic losses in the US over the past two decades , double the losses of the previous 40 years .
2 . Role of Homeowners ’ Insurance : Homeowners ’ ( HO ) insurance provides financial protection against property damages for households and banks requiring insurance for mortgages .
3 . Coverage Statistics : Insurers sell US $ 15tn of HO insurance coverage annually , with nearly 85 % of US homeowners paying US $ 120bn in premiums .
4 . Regulation Variation : States in the US vary significantly in the inputs allowed for rate-setting and the degree to which insurers can charge rates indicated by their loss models .
5 . Decoupling of Rates and Risk : Insurance rates have not adequately adjusted to the growth in losses in high friction states , leading to a decoupling of rates from underlying risks .
6 . Cross-Subsidisation : There is evidence of cross-subsidisation , with rates in low friction states increasing in response to losses in high-friction states , leading to distorted risk sharing across states .
7 . Rate Filings Data : Insurers frequently file for rate changes , with a high propensity of 70 % per year , indicating frequent revisions to meet actuarial goals .
8 . Rate Wedge : The rate wedge , defined as the ratio of rate change received to the target rate change , is used to measure ratesetting frictions , with a large fraction having a rate wedge < 1 .
9 . Frictions Measure : Frictions are quantified as the average gap between the prevailing rate and the rate required to meet actuarial goals , with states ranked into high , medium and low friction categories .
10 . Significance for Households : HO insurance premiums can constitute as much as 60 % of what households pay toward mortgage interest expenses , highlighting its financial significance .