Wildfire risk has strained California’s homeowners insurance market, leading to widespread insurer exit and rising reliance on the FAIR Plan. I study how regulatory constraints interact with firm level capital requirements to shape insurer behavior. I use the staggered implementation of California’s non-renewal moratorium as a quasi-experiment and find that the policy significantly reduced insurer-initiated non-renewal during its active period, with no evidence of delayed and adjustments or an impact on implied premiums. I also find evidence that the moratorium reduced new policy issuance. To interpret these patterns, I develop a model of insurer portfolio choice in which firms operate under regulated prices and a binding capital constraint. Because required capital depends on portfolio risk, entry decisions across geographic markets are non-separable, therefore adding exposure in one region affects the cost of operating in others. The model formalizes how this can generate substitutions across markets, leading firms to exit high risk regions even when they are individually profitable. I find evidence consistent with this portfolio spillover mechanism using a cross-sectional design that exploits pre-moratorium variation in insurer exposure to fire prone areas. I find that insurers with greater prospective moratorium exposure show larger exit responses in their untreated markets following moratorium onset.
Examines the spatial distribution of environmental exposure from golf course pesticide use and its relationship to community socioeconomic characteristics.