In-person (KMC 3-110) and via Zoom

Hyeyoon Jung (Financial Research Economist, Federal Reserve Bank of New York) will present on her paper, "Economics of Property Insurance" (co-authored with Kyle Jung). 

Abstract: We study the economics of homeowners' property insurance by examining how contract design balances the trade-off between incentive alignment and risk sharing. Using granular contract-level property insurance data merged with property-level disaster risk for millions of U.S. households, we develop and structurally estimate a model in which insurers optimally determine contract terms given property risk and household risk preferences. The estimates provide, to our knowledge, the first large-scale contract-level structural measures of risk aversion, risk premia, and the cost of moral hazard, allowing us to quantify how disaster risk is allocated between insurers and households. We find that the cost of moral hazard is small, yet the very mechanism used to mitigate it substantially increases households' exposure to disaster risk: contract design leaves policyholders exposed to roughly 29 percent of total expected losses. This residual exposure is most pronounced for low-FICO households and for properties with the greatest tail risk. Counterfactuals indicate that mandating full insurance would lead to substantial market exit, increasing household vulnerability. We further show that insurers' financial constraints are systematically correlated with the riskiness of underwritten properties and with household characteristics.

Speaker Bio: Hyeyoon Jung is a Financial Research Economist at the Federal Reserve Bank of New York. Her research interests include asset pricing, financial intermediation, household finance, risk management, and international finance. She studies the economic risks faced by firms, households, and financial intermediaries, how they manage those risks, and how financial market frictions affect asset prices and real economic outcomes. Her work has been published in top journals, including the Review of Financial Studies and the Journal of Financial Economics.
She holds a Ph.D. in Finance from NYU Stern, a B.S. in Economics from the Wharton School, and a B.AS from the School of Engineering and Applied Science at the University of Pennsylvania. Prior to graduate school, she worked as an FX & Rates trader at J.P. Morgan.