Premium
The Capitalization of Insurance Premiums in House Prices
Author(s) -
Nyce Charles,
Dumm Randy E.,
Sirmans G. Stacy,
Smersh Greg
Publication year - 2015
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/jori.12041
Subject(s) - capitalization , hedonic pricing , miami , house price , flood insurance , business , actuarial science , econometrics , economics , geography , flood myth , philosophy , linguistics , environmental science , archaeology , soil science
Abstract This study uses Miami‐Dade County, Florida home sales, and Citizens Property Insurance Corporation data for the period 2004 through 2009 to measure the capitalization effect of increases in premiums on house prices. Using hedonic pricing models, spatial autocorrelation models, and difference‐in‐differences models, we find that new information was conveyed to homeowners in the higher risk areas by the 2004/2005 storms and that consumers appear to use the insurance premium as a “risk signal.” We also find some support for the hypothesis that the risk of potential hurricane losses is communicated to potential homebuyers through windzone maps.