Disaster Recovery and Reconstruction: 4 Challenges to Overcome
When natural disaster strikes, businesses left damaged or destroyed have little time to lament what is lost. A host of decisions need to be made to begin rebuilding and getting business back on track— and fast.
Among the first of those decisions may be evaluating whether it is worthwhile – or even possible – to repair and rebuild at all.
“Areas on the coast might see beach erosion or such deterioration of the landscape that it makes site access difficult and reconstruction near impossible,” said Jay Kubinak, SVP, Head Engineering and Construction North America, Swiss Re Corporate Solutions. “We saw such issues in Florida after Hurricane Andrew, and most recently in Puerto Rico after Hurricane Maria.”
Even when projects get the green light, several obstacles remain in the way of the reconstruction process.
To recover from loss, building owners and the contractors repairing them should be prepared to tackle these four potential challenges:
1. Understanding Policy Coverages and the Claims Process
An important step in post-disaster recovery is obtaining the funds to rebuild, and it is often the first struggle owners and contractors must overcome. Understanding how the policy works and working together with the insurance carrier helps expedite the claims process.
In the wake of a natural disaster, there are several factors that may influence the claims process, and the ability to obtain funds. Access to the damaged properties may be delayed due to civil authority, airport and road closures, lack of fuel for automobiles, etc.
Also, identifying and mobilizing qualified claims professionals during a catastrophe can sometimes be a challenge.
“A natural catastrophe means there is a demand for CAT adjusters all at once, and their availability is an ongoing issue,” D.J. Postles, Head East U.S. & Construction Liability, Swiss Re Corporate Solutions. “The problem is amplified when you have several major storms in succession, as we have just seen with Hurricanes Harvey, Irma and Maria.”
A lack of coordinating claims adjustment activities between a policyholder and adjuster can also affect the claims process. Communicating with your claims professional throughout the process is key to facilitating a smooth adjustment. Coordinating inspection times between policyholders, adjusters and experts; reviewing applicable policy terms and conditions; and setting expectations and timelines are just a few things that will allow the parties to strategize the next steps in the adjustment. Due to the large volume of claims following a catastrophic event, this can be more challenging than during the normal course of business.
The biggest impact a carrier can make to expedite the recovery is to advance funds to their policyholder as quickly as possible. A claim need not be finalized before a payment can be made on a covered claim.
Many properties are insured to value, and coverage may not factor in the ultimate cost to repair or replace. Especially with older properties, those costs can stack up quickly if building codes have changed and structures need to be rebuilt to a higher standard. That is why it is imperative for a policyholder to understand their coverages and ensure that their coverages suit their needs.
2. Building Codes
Legislation in the wake of a natural disaster may mandate changes aimed at making buildings more resilient. Even where no mandate is issued, engineers, architects or contractors may recommend certain changes as best practice.
After Superstorm Sandy, for example, buildings near the coast were required to be built at a higher elevation, often requiring new homes to be built on stilts. After Hurricane Andrew in Florida, roofs had to be attached using hurricane straps or clips, instead of simply being nailed down.
These changes were required by law, but other redesigns were suggested to prevent similar losses in the future.
After Sandy, mechanical systems and heating and cooling units typically kept in the basement were housed instead on the third or fourth floor to prevent damage from standing water. In Florida, using concrete to frame the first floor and installing thicker glass windows were recommended to protect homes from wind damage.
Adhering to these changes, however, represents significant cost to project owners.
“Insurance policies are designed to reimburse you for your covered loss, but they may not cover improvements considered as betterments that may fall outside of the policy coverages. So there are decisions to be made as to whether you should make improvements, and by how much. Are those improvements worth it from a cost standpoint?” said Andrew Maichle, Head Construction, Professional Indemnity, North America, Swiss Re Corporate Solutions.
3. Labor Shortage
Owners and contractors have to make decisions quickly regarding improvements and upgrades, and move fast to find the best labor and supplies to execute those plans. An ongoing skilled labor shortage plagues the construction industry in general, but lack of labor becomes more acute when an entire region is trying to rebuild at the same time.
“When the normal workforce in your area is overtaxed, it draws in contractors and laborers from other areas. The issue is this transient workforce may have no reputation in the area where they’re rebuilding,” Kubinak said.
“You want contractors with a strong reputation and local knowledge. But depending on what you are able and willing to pay, you may not get that contractor.”
Contractors unfamiliar with the disaster area may not be up to speed on local building codes and legislative requirements. A contractor based in the South may not realize the importance of building for snow loads in the Northeast, and a Northern contractor working in Texas may not factor humidity into his plans.
“Local workers know what materials to use. If you’re tapping into that transient workforce, you might not be getting the best supplies. The local expertise is lost,” Maichle said.
Lack of local knowledge combined with overworked laborers also raises the risk of construction defect.
“People may be working double shifts, and supervision may be stretched out over a few sites, so the quality of work is not necessarily continually at its peak,” Postles said. “When you have a tight timeframe, aggressive rebuilding schedules, and lack of qualifications, it creates a risky scenario.”
Non-compliant structures increase liability for the building owner and pose a reputational threat to contractors.
“Contractors live and die by their reputation,” Kubinak said. “The constraints of rebuilding in a disaster zone certainly threaten the quality of their work.”
4. Materials Shortfalls
Just as there may be shortages of CAT adjusters or construction workers, building materials also become scarce during post-disaster reconstruction.
“Some materials can be tougher to get in post-disaster reconstruction because they simply were not around in high volume prior to the event,” Kubinak said.
That can lead to inferior products flooding the market as manufacturers jump to meet the demand as quickly as they can.
After Katrina ravaged New Orleans, for example, there were shortages of half-inch (1/2″) drywall used in residential construction, since most U.S. drywall manufacturers shifted their production to five-eighth inch (5/8″) drywall used in commercial construction. The shortage of 1/2″ drywall caused suppliers to turn to inferior products made by Chinese manufacturers, later found to be contaminated with byproducts, which reportedly caused a chemical reaction capable of corroding copper pipes, emitting a sulfur smell, and even causing illness.
“People have to find different resources, and companies are going to produce what they can make the most profit with,” Maichle said. “Securing the best materials comes back to relationships with your suppliers and being quick to secure items that typically become scarce after a disaster. Starting recovery as soon as possible betters your chance of getting the best labor and supplies.”
Meeting Challenges with Reliability and Speed
Working with an insurer with a reputation for claims excellence is vital to kickstarting recovery.
“The claims experience is the tangible aspect of an insurance product,” Postles said. “Our clients need quick assessments and prompt payments, and we execute that with urgency and responsiveness.”
Within days of Harvey’s rampage through Houston, Swiss Re’s emergency response claims team had set up a “command central.”
“The whole team was in a room together, as opposed to communicating through telephone calls and emails. We also were able to reallocate resources to the storm-hit areas that needed them most,” Maichle said.
In some cases, Swiss Re Corporate Solutions is able to issue advance payments to clients so recovery and reconstruction can get underway as soon as possible. It is also one of few insurers who offer parametric coverages for precisely these situations when almost immediate payment is needed.
“Parametric policies complement traditional property coverages, and their primary benefit is expedited claims payment. If the event meets the qualifying triggers of the policy, a payment is made. It cuts out the typically lengthy claims process and results in quick liquidity and lots of time saved,” Maichle said.
Swiss Re’s financial stability also assuages any doubts or concerns clients may have over receiving their payments while so many others are making claims as well.
“There may be concern about insurer solvency after NAT CAT events. Swiss Re has been around for more than 150 years, and the strength of its balance sheet can handle these large events,” Postles said.
“We have been in the construction business for decades, and we are committed to expanding in this industry,” he added. “It is an area we believe in and are dedicating more resources within the North American market.”
To learn more, visit https://corporatesolutions.swissre.com/.
Insurance products underwritten by Westport Insurance Corporation, Overland Park, Kansas, a member of Swiss Re Corporate Solutions. This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Swiss Re Corporate Solutions. The editorial staff of Risk & Insurance had no role in its preparation.