Developing a Framework for Financial Achievability of Department of Transportation Research and Development Projects

The article of record as published may be found at http://dx.doi.org/10.3141/2480-02A financial analysis framework was developed to allow departments of transportation to assess research projects better. The framework recognizes that the research process contains multiple stages of decision making, and the framework details the information needed at each stage. The framework is described as it applies to each step in the research process: identifying potential research projects, evaluating research proposals, monitoring ongoing research projects, and evaluating final research reports. The framework also considers the decision to implement the research and its potential effects on employees. The application of the framework is illustrated with several Florida Department of Transportation research projects that involve the development of a multipurpose survey vehicle for evaluation of Florida roadways. This illustration allows for an explanation of each step in the framework with actual data from research reports and other internal or external sources. Although the framework is flexible and can be adapted for use in evaluating different types of projects, some judgment will be required when the specific inputs to the model are considered. Successful implementation of the framework will require focused data collection with emphasis on identifying the potential net benefits of research projects

An Examination Of The Geographic Aggregation Of Catastrophic Risk

The debate in the United States about establishing a mechanism for insuring catastrophic wind risk at the national level pre-dates the intense 2004-2005 hurricane seasons. The prevailing argument against establishing any larger risk pool is that it would create a subsidy for the higher risk exposures. To determine whether benefits do accrue by aggregating catastrophic risk across increasingly wide geographic areas, the paper uses catastrophe models to evaluate the behavior of residential property portfolios within the state of Florida and for a larger risk pool that includes multiple combinations of coastal states in the southeastern United States. We find that geographic aggregation does not inherently subsidise high-risk exposures, reduces uncertainty, and reduces required reserves relative to total exposure for the least frequent and more severe events. This finding holds true for all state combinations evaluated in this study

Market Reaction to Regulatory Capture and Political Risk in a Highly-Salient Environment

The catastrophic losses from the combined 2004 and 2005 hurricane seasons resulted in significant price increases and mass non-renewals in the residential property insurance market in Florida. The public outcry to these insurer decisions yielded a highly salient insurance pricing environment. On November 29, 2006, Governor-elect Crist called for a special legislative session to provide relief to Florida residents and businesses, making good on his campaign pledge of addressing high insurance costs. We hypothesize that the call for the special session was indicative of consumer groups having captured the regulatory/legislative process, to the detriment of the insurance industry. The apparent shift in regulatory capture from the insurance industry to consumers implies an increase in political risk. Consistent with our hypothesis, we find that publicly traded homeowners’ and commercial multi-peril insurers with Florida exposure experienced a negative stock price reaction to the announcement of the special session

The Florida Catastrophic Storm Risk Management Center The Capitalization of Homeowners Insurance Premiums in House Prices THE CAPITALIZATION OF HOMEOWNERS INSURANCE PREMIUMS IN HOUSE PRICES THE CAPITALIZATION OF HOMEOWNERS INSURANCE PREMIUMS IN HOUSE PRIC

Executive Summary The primary questions of interest in this study are whether and, if so to what extent, changes in homeowners insurance premiums affect real estate prices. As a cost of owning a home, homeowners insurance would have an impact on the homeownership decision, but in normal times one would expect the impact to be marginal. However, during a period of high insurance costs or rapidly increasing premiums, these costs would likely have a stronger effect on housing demand and the capitalization of these higher costs into house prices could create a downward pressure on prices. The supply of housing could also be affected as homeowners find the increasing ownership costs a hardship or unbearable and decide to terminate ownership. As such, higher insurance costs could have a significant impact by both reducing the demand and increasing the supply of housing. with adjustable-rate mortgages, which had become popular in the early-mid 2000s, experienced increasing contract rates and payments as these loans reset. Borrowers with interest-only adjustable-rate loans, which had also become more popular over the last several years, saw an even more dramatic increase as payments became amortizing. Second, the dramatic increase in property values in the early-mid 2000s led to continual increases in property taxes as property assessments increased. Insurance provided the third, and in some cases, most visible evidence of increasing homeownership costs. A doubling of premiums was not uncommon in areas of the state that had the highest natural disaster risk exposure. Many highly leveraged homeowners had little or no additional income to offset these increasing costs and were forced to consider selling their properties. Simultaneously, however, demand for real estate was decreasing as prospective buyers factored these additional costs into the prices they were willing to pay. The size and price volatility of the Florida housing market over the 2004-2009 time period in conjunction with the shock losses that the property insurance market sustained over this period provide an excellent setting in which to examine the relationship between a significant housing cost factor (homeowner's insurance) and the demand for residential real estate. Given that property taxes are a main revenue source for many states and local jurisdictions and given that property tax collections are based on property values that can be affected by factors such as changes in insurance costs, it is important to better understand the cost factors that ultimately have a significant impact on the demand for real estate and real estate prices. A better understanding of these relationships can provide for more effective public policy decisions regarding insurance pricing and regulation of the insurance industry in general. This study examines the extent to which changes in homeowners insurance premiums affect the demand for housing. Previous research, using primarily floodplain data, has shown that increased insurance costs are negatively capitalized into house prices. This study used Miami-Dade County 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 a hedonic pricing model and measures of changes in homeowners insurance premiums over one-, two-and three-period segments prior to the sale of the property, the results showed that increases in premiums are negatively capitalized in prices. In the data used in this study, homeowners spent an average of $2,145 per year for property insurance. The changes in insurance premiums during the time period were dramatic: the one-, two-, and three-year decreased the average house price by$13,484.62. These changes in the average house price produce implied cap rates of 11.53%, 8.92%, and 11.55%, respectively for the one-, two-, and three-year premium increases. THE CAPITALIZATION OF HOMEOWNERS INSURANCE PREMIUMS IN HOUSE PRICES Abstract This study examines the impact of changes in property insurance premiums on house prices. Previous research, using primarily floodplain data, has shown that increased insurance costs are negatively capitalized into house prices. This study uses Miami-Dade County 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 a hedonic pricing model and measures of changes in homeowners insurance premiums over one-, two-and three-period segments prior to the sale of the property, the results show that increases in premiums are negatively capitalized in prices

The Capitalization of Building Codes in House Prices

Building code, Safety, Housing prices, Catastrophic risk, Hedonic pricing model,