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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
Equilibrium with Mutual Organizations in Adverse Selection Economies
Boyd, John H.; Blandin, Adam; Prescott, Edward C. (2015-01-09)
An equilibrium concept in the Debreu (1954) theory-of-value tradition is developed for a class of adverse selection economies and applied to the Spence signaling and Rothschild-Stiglitz (1976) adverse selection environments. The equilibrium exists and is optimal. Further, all equilibria have the same individual type utility vector. The economies are large with a finite number of types that maximize expected utility on an underlying commodity space. An implication of the analysis is that the invisible hand works for this class of adverse selection economies.
Working Papers , Paper 717

A Closer Look at the Correlation Between Google Trends and Initial Unemployment Insurance Claims
Fogarty, Michael; Butters, R. Andrew; Brave, Scott A. (2020-06-17)
Since the onset of the pandemic, there has been growing interest in tracking labor market activity with “big data” sources like Google Trends.1 Just as an example, one can track how the number of Google searches with the term unemployment office has changed over the past week for the Chicago metro area or explore how unemployment became one of the top searched issues across the U.S. during the early months of the pandemic here.
Chicago Fed Insights

Briefing
How Well Insured Are Older Americans?
Henry, Erin; Jones, John Bailey; Sow, Pauline (2023-06)
Using a combination of survey and administrative data, we calculate the portion of medical expenditures that retirees pay out of pocket. We find that retirees are mostly well insured against medical spending risk, with over 80 percent of their spending covered by Medicare, Medicaid or other insurers. We also find, however, that individuals with extremely high medical expenses pay a larger — not smaller — share out of pocket than those with more average expenses. Much of this difference is attributable to nursing home stays, which are typically uncovered by most insurers.
Richmond Fed Economic Brief , Volume 23 , Issue 19

Newsletter
How Health Insurance Improves Financial Health
Kaestner, Robert; Mazumder, Bhashkar; Hu, Luojia; Miller, Sarah; Wong, Ashley (2019)
Low-income Americans who became eligible to enroll in Medicaid due to the Affordable Care Act saw their medical debt cut in half.
Chicago Fed Letter

Discussion Paper
Physical Climate Risk and Insurers
Jung, Hyeyoon; Engle, Robert; Ge, Shan; Zeng, Xuran (2024-04-03)
As the frequency and severity of natural disasters increase with climate change, insurance—the main tool for households and businesses to hedge natural disaster risks—becomes increasingly important. Can the insurance sector withstand the stress of climate change? To answer this question, it is necessary to first understand insurers’ exposure to physical climate risk, that is, risks coming from physical manifestations of climate change, such as natural disasters. In this post, based on our recent staff report, we construct a novel factor to measure the aggregate physical climate risk in ...
Liberty Street Economics , Paper 20240403

Newsletter
Catastrophe Bonds: A Primer and Retrospective
Polacek, Andy (2018)
Since 1997, the catastrophe (CAT) bond market has provided the insurance industry with protections against natural disasters that have grown more frequent and costly. This article explains how CAT bonds work, and then looks at how the market for them has grown in size, coverage, and sophistication over the past two decades. It also explores how and why different types of institutions use CAT bonds to transfer insurance risks.
Chicago Fed Letter

Report
Anxiety in the face of risk
Eisenbach, Thomas M.; Schmalz, Martin C. (2013)
We model an ?anxious? agent as one who is more risk averse with respect to imminent risks than with respect to distant risks. Based on a utility function that captures individual subjects? behavior in experiments, we provide a tractable theory relaxing the restriction of constant risk aversion across horizons and show that it generates rich implications. We first apply the model to insurance markets and explain the high premia for short-horizon insurance. Then, we show that costly delegated portfolio management, investment advice, and withdrawal fees emerge as endogenous features and ...
Staff Reports , Paper 610

Journal Article
A Method for Estimating the Price of Stablecoin Insurance
Jacewitz, Stefan; Acker, Chris (2024-06-20)
As crypto assets such as stablecoins have gained traction in recent years, they have also raised financial stability concerns. The attention has likely been motivated by a steady stream of stablecoin collapses, which are essentially bank runs. One approach to mitigating this risk could be to insure stablecoins in a way similar to bank deposits—that is, with a third-party guarantee to cover the depositor’s (or coin-holder’s) losses should the bank (or issuer) collapse. Because stablecoins have many functional similarities to bank deposits, the theory underlying deposit insurance pricing ...
Economic Review

Working Paper
Insurance and Inequality with Persistent Private Information
Leukhina, Oksana; Bloedel, Alex; Krishna, R. Vijay (2021-12-10)
This paper studies the implications of optimal insurance provision for long-run welfare and inequality in economies with persistent private information. We consider a model in which a principal insures an agent whose privately observed endowment follows an ergodic, finite Markov chain. The optimal contract always induces immiseration: the agent’s consumption and utility decrease without bound. Under positive serial correlation, the optimal contract also features backloaded high-powered incentives: the sensitivity of the agent’s utility with respect to his report increases without bound. ...
Working Papers , Paper 2018-020

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