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The Capitalization of Insurance Premiums in House Prices

Author

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  • Charles Nyce
  • Randy E. Dumm
  • G. Stacy Sirmans
  • Greg Smersh

Abstract

type="main" xml:lang="en"> 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

  • Charles Nyce & Randy E. Dumm & G. Stacy Sirmans & Greg Smersh, 2015. "The Capitalization of Insurance Premiums in House Prices," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 82(4), pages 891-919, December.
    • Handle: RePEc:bla:jrinsu:v:82:y:2015:i:4:p:891-919
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    Citations

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    Cited by:

    1. Cheung, Ron & Wetherell, Daniel & Whitaker, Stephan, 2018. "Induced earthquakes and housing markets: Evidence from Oklahoma," Regional Science and Urban Economics, Elsevier, vol. 69(C), pages 153-166.
    2. Koen de Koning & Tatiana Filatova & Okmyung Bin, 2019. "Capitalization of Flood Insurance and Risk Perceptions in Housing Prices: An Empirical Agent‐Based Model Approach," Southern Economic Journal, John Wiley & Sons, vol. 85(4), pages 1159-1179, April.
    3. Seung Kyum Kim & James K. Hammitt, 2022. "Hurricane risk perceptions and housing market responses: the pricing effects of risk-perception factors and hurricane characteristics," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 114(3), pages 3743-3761, December.
    4. Céline Grislain-Letrémy & Bertrand Villeneuve, 2019. "Natural disasters, land-use, and insurance," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 44(1), pages 54-86, March.
    5. Laura A. Bakkensen & Xiaozhou Ding & Lala Ma, 2019. "Flood Risk and Salience: New Evidence from the Sunshine State," Southern Economic Journal, John Wiley & Sons, vol. 85(4), pages 1132-1158, April.
    6. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    7. Seung Kyum Kim & Paul Joosse & Mia M. Bennett & Terry Gevelt, 2020. "Impacts of green infrastructure on flood risk perceptions in Hong Kong," Climatic Change, Springer, vol. 162(4), pages 2277-2299, October.
    8. Randy E. Dumm & Charles Nyce & G. Stacy Sirmans & Greg T. Smersh, 2022. "Pricing Moral Hazard in Residential Properties: The Impact of Sinkhole Claims on House Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 64(1), pages 30-70, January.

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