The storm is over, the fires are out, but anyone who has survived a natural disaster, and that is more of us every year, knows that the problems are just beginning.  A new report by CoreLogic looks at how a demand surge sparked by rebuilding efforts may or may not affect the recovery in a disaster's aftermath. By demand surge they are referring to a sudden increase in the costs of materials, labor, or other services which can ultimately increase reconstruction costs and in some cases, limit the ability of property owners to recover in a timely matter. This is particularly true where the victims are underinsured or not insured at all.

They found that the growth of major chains like Lowes and Home Depot has mitigated the effect of a demand surge on materials, both their availability and cost. The same weather science that gives the public a heads-up regarding many disasters also allows these big box stores to be ready to meet post-disaster demand. Guy Kopperud, writing in CoreLogic's blog says,  "When Hurricane Harvey hit the Gulf of Mexico coast in August 2017, retailers in Houston had 10 times their regular inventory of drywall within weeks of the storm dissipating. This helped to eliminate the normal backlog of materials that used to occur following a natural disaster."  The chains' multiple stores and good supplier logistics make it easier for the big building supply stores to realign needed materials from one region to another near the impact area. They can even shift production capacity from commercial products to those needed in residential rebuilding.

Labor is a different matter.  There is a direct correlation between the ability of a community to rebuild and its labor pool and again, Kopperud references Harvey. When it hit in August, he says, the unemployment rate in Houston was 5.1 percent.  By December it had dropped to 4.5 percent as 8,500 construction workers joined the workforce.  Since losses from Harvey were largely water related, masons and carpenters became drywall hangers and flooring installers. Workers from outside of construction, such as hospitality workers, changed jobs, lured by higher wager. In contrast, that same fall the Tubbs fire struck Santa Rosa, California where the unemployment rate was 3.0 percent. It dropped to 2.5 percent over the next year but only 1,700 persons were added to the workforce. The tight labor and hot housing markets left little capacity for contractors in surrounding areas to absorb the demand and there was little in the way of housing to accommodate workers from outside the area. The Santa Rosa problems were exacerbated by California's tough environmental and licensing requirements which severely limited the use of outside contractors.

CoreLogic says a demand surge can increase costs of rebuilding anywhere from 15 to 30 percent and typically lasts six to 12 months. It can impact one skilled trade or several and its magnitude not only relates to the size and severity of the event but can impact losses differently.  The more complex the project, the higher the probability of price spikes.

Where insurers settle homeowner claims quickly and efficiently, it gives owners the ability to better navigate a demand surge. Kopperud tells insurers that, while not always possible in instances of larger more catastrophic events, understanding and monitoring the impact demand surge has on rebuilding efforts is an important step in helping policyholders recover as painlessly as possible. Likewise, leveraging a reconstruction estimating solution that considers the impact of demand surge helps ensure policyholders are not underinsured in the first place and therefore have enough coverage to rebuild their homes.