What We Know about Demand Surge: Brief Summary

Abstract

Demand surge is a process resulting in a higher cost to repair building damage after large disasters than to repair the same damage after a small disaster; this higher cost can be an additional 20% or more. It is of interest to insurers, regulators, property owners, and others. Despite its importance, demand surge has no standard definition or generally accepted predictive theory of its mechanisms and quantitative effects. By studying the circumstances of natural disasters that did and did not cause demand surge, common explanatory themes emerge from these historical events that may describe why and how much losses increase in some disasters. The themes are: total amount of repair work; timing of reconstruction; costs of materials, labor, and equipment; contractor overhead and profit; the general economic situation; insurance claims handling; and decisions of an insurance company. The development of these themes will aid in constructing a mechanistic, empirically supported approach to modeling demand surge.