As climate risk intensifies, governments increasingly subsidize home insurance against natural hazards. While this policy lowers premiums for high-risk households and maintains broad insurance coverage, it may also distort location choices and raise exposure in hazardous areas. In this paper, I study this trade-off in the context of the French coastal real estate market. I document that home insurance premiums are effectively uncorrelated with environmental risk, creating weak price signals for households about the cost of exposure. Consistent with this muted incentive, cross-sectional regressions and staggered difference-in-differences around the official disclosure of environmental risk maps reveal no price penalty for exposure. To assess the broader consequences for household sorting, construction patterns, and aggregate value-at-risk, I develop a spatial equilibrium model of housing demand and supply featuring disaster risk, land-use regulation, and flat insurance pricing. Counterfactual simulations examine how introducing risk-based premiums would affect housing-market outcomes, welfare, and the long-term sustainability of the French system.

Insurance companies are key players in managing climate-related risks, yet little is known about their pricing and coverage strategies. As climate change increases the frequency and severity of natural disasters, concerns about rising premiums, shrinking coverage, and the very insurability of high-risk areas underscore the need to better understand insurers’ choices and the role of government interventions in the home insurance market. In this paper, we study how a specific policy design, public reinsurance, shapes insurer behaviors, using a new contract-level dataset from France that links premiums to detailed property characteristics, historical losses, and precise geographic location. Public reinsurance is widely viewed as central to maintaining affordable coverage and high take-up, but rising risks challenge its budget neutrality. To explore this trade-off, we first document insurers’ pricing behavior and exposure to natural catastrophe risk across time and space, examining the extent of risk-based discrimination, market withdrawal or avoidance, and heterogeneity across providers. We then estimate a model of homeowner insurance demand and supply to quantify how existing public reinsurance schemes affect prices, coverage, and participation, and to evaluate the impact of alternative policy designs.