Tuesday, February 18, 2014

The relative cost of S. Florida Homeowners Insurance: 1975 vs. 2013

While I was working on my dissertation I made a visit to the main branch of the Miami-Dade Public Library and dug through old newspaper articles about property insurance in Florida.  I was looking for historical context for current political debate about the state's homeowners insurance troubles. 

The image above is from a Miami Herald article by Molly Sinclair dated July 20, 1975.  It offers a starting point for evaluating how much homeowners insurance has increased over the years. 

Comparing yesteryears costs of insurance to today's costs is difficult because so much has changed: the cost of the home insured, the density and wealth of a place, how geophysical hurricane risk is measured, market conditions, etc.  

Still, we can draw lessons about the changing cost of insurance and gain understanding of context for political debate about the cost of insurance by looking at changes in cost relative to some relevant social dimension.  Say, for instance median income.    

The graph above shows the average cost of homeowners insurance from Dade, Broward, and Palm Beach Counties as a proportion of median income in 1975 and 2013.  I used the Miami Herald article for data on 1975 costs and the FLOIR's CHOICES website for data on 2013 costs (customer service at FLOIR assured me that the CHOICES website reflects second half or 4th quarter 2013 costs).  I used the US Census for median income data.  Also, the Miami Herald article cited costs for a $35k home.  Adjusted to 2013 values using the HPI for relevant metropolitan areas, this gives a home value range of ~$150-$200k.  So, I used the data on the Choices website for pre-2001 construction which have a value of $150k.  

The graph shows that the cost of homeowners insurance today is not just more than in 1975 but as a proportion of income, it is a substantially heftier expenditure for the household.  In 1975, homeowners insurance accounted for 1% of household median income whereas today it accounts for between ~8-10% of median income.

One take away from this is that the pace of increasing costs of homeowners insurance in Florida surpasses the rate of income growth.  An underlying issue in political struggles over the cost of insurance is not just how much the insurance costs in real terms but the burden of the cost relative to incomes. 

1 comment:

  1. So which is the right price?

    Home prices increase by factor of 4.3; income increases by a factor of 4.8 (48/10 for the South if I'm reading the linked excel sheet correctly).

    Suggests the increase is entirely due to higher risk premium. If it's 4k for the insurance then we're looking at a break-even return period of blowing the thing over once every 38 years. Adjust for a profit provision and maybe once every 50 years?

    Another problem with the political struggle for insurance costs is that homes built on coasts and near water get destroyed way more than they used to. Should we all subsidize this legacy?


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