The Capitalization of Insurance Premiums in House Prices

29 Pages Posted: 19 Jan 2016

See all articles by Charles Nyce

Charles Nyce

Florida State University

Randy E. Dumm

Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law

G. Stacy Sirmans

Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law

Greg Smersh

University of South Florida

Date Written: December 2015

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.

Suggested Citation

Nyce, Charles and Dumm, Randy E. and Sirmans, G. Stacy and Smersh, Greg, The Capitalization of Insurance Premiums in House Prices (December 2015). Journal of Risk and Insurance, Vol. 82, Issue 4, pp. 891-919, 2015, Available at SSRN: https://ssrn.com/abstract=2717148 or http://dx.doi.org/10.1111/jori.12041

Charles Nyce (Contact Author)

Florida State University ( email )

821 Academic Way
349 RBB, College of Business
Tallahassee, FL 32306
United States
850-645-8392 (Phone)

Randy E. Dumm

Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law ( email )

College of Business
Tallahassee, FL 32306
United States

G. Stacy Sirmans

Florida State University - Department of Risk Management/Insurance, Real Estate and Business Law ( email )

College of Business
Tallahassee, FL 32306
United States
850-644-8214 (Phone)
850-644-4077 (Fax)

Greg Smersh

University of South Florida ( email )

College of Business Administration Dept. of Finance
St. Petersburg, FL 33701
United States
727-553-1619 (Phone)

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