Demand surge
The rise in repair and rebuilding costs that follows a major catastrophe, because demand for labor and materials suddenly exceeds local supply; it pushes the loss beyond what physical damage would suggest.
After a major windstorm or hurricane, tens of thousands of buildings must be repaired at the same time in the same region. Roofers, carpenters and cleanup firms are no longer enough, materials run short, contractors come from far away and charge accordingly. The cost of the same repair can then rise by several tens of percent compared with a normal period. This is demand surge. Catastrophe models build it in as a multiplier that grows with the size of the event: a small loss does not disturb the local market, a major event saturates it. Several US catastrophes, from Hurricane Andrew in 1992 to Katrina in 2005, showed its weight, and recent years have combined it with general materials inflation. The phenomenon also affects ancillary costs: longer temporary housing, prolonged business interruption for lack of available contractors, debris removal. For the insurer, it has two consequences. It skews pricing based on average repair costs observed outside a crisis. And it interacts with capped covers: a policy whose sum insured was set on a normal rebuilding cost becomes insufficient at the exact moment it is needed, which triggers average or leaves the insured underpaid.
Textbook case: before the hurricane, replacing a roof cost 25,000 dollars in the county. Three months later, quotes reach 36,000 dollars. The insurer's model, which assumed a 20 percent factor for an event of this size, underestimates the actual loss by nearly a quarter.
demand surge, post-event inflation, post-loss amplification
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