Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/312410 
Year of Publication: 
2025
Series/Report no.: 
ICIR Working Paper Series No. 55/25
Publisher: 
Goethe University Frankfurt, International Center for Insurance Regulation (ICIR), Frankfurt a. M.
Abstract: 
We document a novel transmission channel of monetary policy through the homeowners insurance market. On average, contractionary monetary policy shocks result in higher homeowners insurance prices. Using granular data on insurers' balance sheets, we show that this effect is driven by the interaction of financial frictions and the interest rate sensitivity of investment portfolios. Specifically, rate hikes reduce the market value of insurers' assets, tightening insurers' balance sheet constraints and increasing their shadow cost of capital. These frictions in insurance supply amplify the effects of monetary policy on real estate and mortgage markets by making housing less affordable. We find that monetary policy shocks have a stronger impact on home prices and mortgage applications when local insurers are more sensitive to interest rates. This channel is particularly pronounced in areas where households face high climate risk exposure. Our findings highlight the role of insurance markets in amplifying macroeconomic shocks and the interconnections between homeowners insurance, residential real estate, and mortgage lending
Subjects: 
Insurance Markets
Monetary Policy
Financial Frictions
Housing Markets
JEL: 
E5
E44 G21
G22
G5
R3
Document Type: 
Working Paper

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