NY Fed study: insured homeowners still carry 29% of expected losses, low-FICO ones most

Serguey Asael Shinder06 October 2026, 09:222 min read

Researchers at the Federal Reserve Bank of New York published on 5 October, on the bank's Liberty Street Economics blog, estimates of how much risk US homeowners keep despite being insured.

The trade-off. Insurers cannot observe how well owners maintain and protect their homes, the problem known as moral hazard, so contracts use deductibles and coverage limits to keep owners responsible for part of any loss. The authors built a contract-design model and estimated it on millions of homeowners' insurance contracts matched with property-level exposure and disaster risk, using McDash and CoreLogic data.

The headline estimate. Keeping homeowners "on the hook" costs insurers relatively little: the estimated direct cost of moral hazard is modest. But it leaves households with substantial risk. Deductibles and coverage limits leave them exposed to 29% of expected losses.

Who carries it. The burden is uneven. Policyholders with lower FICO credit scores are estimated to be more risk-averse, pay higher risk premiums, face higher moral-hazard costs and retain more uninsured exposure; all four measures fall steadily as FICO scores rise. The authors call it a paradox: the households likely to find a disaster loss hardest to absorb hold the contracts that leave them most exposed. They stress these are correlations, not causal estimates. Residual exposure is also higher in places with greater tail disaster risk.

The insurer side. More financially constrained insurers, measured by risk-based capital ratios, tend to insure riskier properties and collect higher dollar risk premiums, but the risk premium as a share of the total premium is roughly flat. The authors read that as constrained insurers being matched with riskier properties rather than simply charging higher margins.

For lenders and policymakers, the finding is a reminder that an insured mortgaged home is not a fully protected asset: almost a third of expected losses stay with the household.