Growth in demand is defined as the demand for products and services that exceed regional possibilities for their efficient supply. This phenomenon is relevant for both the Christchurch earthquakes and the east coast of the United States after Hurricane Sandy. This is a common occurrence throughout the world, after a disaster. The surge in demand is relevant to all affected political holders in that the need for disaster relief and recovery facilities rises dramatically due to a shortage and increase in demand, which leads to an increase in the cost of these goods as people recover. Disaster insurance postal costs are poured into the affected region, but recovery is limited to materials and labor shortages. This, in turn, leads to an increase in wages, and sometimes to a very fundamental increase in prices for materials. Building materials and costs (for example, steel, wood, cement, building materials, such as beating), as a rule, have the most noticeable effect on demand growth, but oil and gas prices may also increase.
Worldwide, the demand for a surge after a catastrophe can be seen wherever a disaster is the result of a flood, storm, hurricane, or earthquake. It is clear that the balance of supply and demand becomes unbalanced. Examples of earthquake events that have seen demand spikes were noticed as early as 1886 in Charleston, the South Carolina Earthquake (USA), which created labor demand far in excess of local demand. The level of wages for both skilled and unskilled labor has increased significantly above the levels of the above-mentioned. Reinforced wages and labor shortages were knocking into action and created a long waiting list for repairs, which not only caused serious difficulties for owners, but also increased property losses (due to deterioration with time or further damage) that, in their queue, led to shoddy and inadequate repairs. We are currently experiencing this particular scenario in Christchurch. Without a strong mechanism to control the quality of construction, materials, and labor pricing, residents face a frustrating time.
In 1906, the earthquake and fire in San Francisco (USA) presented other problems with increasing demand. Construction costs increased immediately after the event and resulted in higher insured losses than expected. Capacity constraints for labor and materials lead to price fluctuations and significantly increase the cost of renovation as the demand for construction contractors for damage increases. The increase in the cost of repairs due to lack of materials and labor leads to higher requirements. And the more widespread the damage, the higher the price of resource recovery. Consequently, contractors increase the rate for renovation projects, and this leads to an incredible increase in prices, sometimes twice as high as in a competitive market.
During the 1994 Northridge earthquake (USA), there were no claims regulators in the local area, so insurers welcomed people from other parts of the country and abroad. We also had the same picture. These regulators were usually not adequately trained in seismic damage and could not adequately assess the quantum or severity of damage and, therefore, could not adequately evaluate it.
After the Newcastle earthquake in Australia, restoration costs were said to have increased by 35%. After Cyclone Tracy in Darwin, construction costs increased by 75%; ACT bushfires in 2003, construction costs increased by 50% between November 2002 and January 2003. Preliminary reports after Cyclone Larry in Queensland showed that after the catastrophe there was a significant increase in local construction costs; at the same time, insurers estimate construction costs, which increase by at least 50% immediately after a catastrophe.
The increase in demand depends on the size of the disaster: the greater the catastrophe and the damage to property, the greater the magnitude of the surge in demand. There is no doubt that at present the growth factor is also a factor. In addition, a remote and isolated country was proposed, such as New Zealand, where supply and transportation were difficult, as causes of particularly significant demand growth events. (See http://www.stuff.co.nz/business/4129260/Price-gouging-threat-to-recovery-economist).
The critical element here is how economically it is possible to transfer materials, labor, equipment and financing of reconstruction to the affected area? These elements will physically affect the repair and restoration of Christchurch, and they should all be available locally when necessary. If the demand for labor is met, then labor can and will receive higher wages. (See http://www.stuff.co.nz/business/rebuilding-christchurch/7438808/Builders-wages-rise-faster-in-Canty). In addition, the total amount of repairs in the region will also determine the growth in demand, and local building codes will determine the level of repairs needed and the skill needed in the workforce.
Probably, insurers probably did not sufficiently take into account changes in the construction requirements for the code (for example, reinforced enterprises) when determining the quantum for replacing property. In addition, the reality of the schedules and the possibility of their satisfaction will affect the amount of work required and the speed of the work performed - will also have a significant impact on the final costs payable.
Delayed repairs will cost more due to deterioration and additional damage to property, as well as changes in prices for materials, labor rates and contractor overhead. Experience abroad shows that these bursts can reach 70%. Local and national government efforts will also affect the timing of recovery. In light of the fact that we are witnessing a very slow start to the recovery phase, very large increases in demand surge can be predicted, since both residential and commercial reconstruction. Well done National!
Therefore, my message is that insurers must combat the uncertainty of the growth in demand for claims costs after natural disasters. They consider themselves to have a legitimate interest in paying only that part of the loss for which they calculated, and presented a premium. On the other hand, policyholders must ensure that these price spikes in demand are taken into account in their final settlement of claims, otherwise they will be considered out of pocket and be potentially in a situation where they cannot afford to replace what they have lost.
More reputable engineering firms and quantity inspectors have already begun to include pre- and post-tender bids, which reflect these jumps. The numbers are variable and will no doubt continue to grow.
As an example, you will lose your home in 2010, and recovery is impossible until 2015, and you did not affect demand growth% - then you endure a significant loss, and your overall replacement policy will not fulfill your promises.
Thus, the message - do not forget to make a reserve for the growth of demand in your final settlement.
