Today, repairs after a property loss are more expensive and complex than ever before. COVID is still present, causing delays in production and deliveries. The war in Ukraine has led to challenges supplying various sectors, such as agriculture for grain and fertilizer. As we all witness the effects of inflation, supply delays and shortages, what underlying factors should be considered and how can we adapt?
Undeniable price increases
In addition to rising commodity prices, there is an unprecedented explosion in the price of energy. Inflation has effected the prices of materials on a recurring basis since 2019. The prices of copper, wood, steel and aluminum in particular) increase from 60% to 70% every three months, according to INSEE. It’s also not uncommon to see repair quotes due within 15 days, which complicates the task of experts to validate them within such tight deadlines. After 15 days, in some instances, suppliers may increase the advertised rates without certainty that their supplies have increased. The law of supply and demand exacerbates this race to raise prices.
Energy price inflation is impacting the production costs of certain materials, first and foremost steel and plastics. Some companies have even decided not to produce. Even the tertiary sector is facing this headache of optimising energy bills. Cinemas, swimming pools and sports halls are considering partial closure during the week due to a cost of maintaining too high a temperature. Ski resorts could decide not to open this winter in the face of tenfold bills. In this impossibility of exploitation, it is clear that inflation plays a major role.
Shortages, as we saw during the hail episodes in the Centre of France this past summer impact roofing materials — complicating repair operations. The tiles in particular are vastly unavailable. If this does not directly affect individuals, it does affect companies. In the absence of alternative technical solutions, ancillary costs — for loss of use or loss of rent, for instance — may be impacted. In some cases, order times have increased beyond three to four months. While insureds are often relieved to be compensated, many prefer that their property be repaired in a timely manner.
Deadlines and the cost of project management
As the time between direct damage and its repair is extended, inflated project management costs are introduced. If an item is estimated at 10% of the total cost of a site in general, it can be increased to 12% on a revalued amount of work. We must remain vigilant on these points that contribute to the overall increase in the price of repairs.
A situation that affects all construction companies
Faced with supply difficulties and rising direct material costs, construction companies compete to best serve their customers. They now have full order costs, and in the context of increased activity, they prefer customers who validate quotes quickly to include them in their site schedule. This competition is most often to the detriment of the consumer who is in a hurry to validate quotes within 15 days, without the possibility of comparing or negotiating them. The combination of inflation and shortages can lead to a significant increase in the average cost of claims, as cases become longer and more complex.
We have limited visibility into the factors that could reverse inflation trends. Gas and transport deregulation will begin to take effect in 2023. When it comes to natural disasters, we are certain that we will have to deal with more and more climatic events of all kinds, including risks not considered in France yet. The frequency and severity couple changes that lead to increasingly critical claims.
Networks of experts need to intervene quickly and it is necessary to mobilize in one month the usual capacity of six months of files for an event like the hail of the Central region in June. In addition, experts need diverse skills depending on the nature of the event.
As responders to claims, we must reflect on our overall environmental impact, which includes traveling to manage files, the solutions we can propose to repair, how to dialogue with our ecosystem as a whole and more . We must ensure that there is fairness in the handling of each case. The search for alternative solutions, use of old parts and re-use materials, logic of course circuits is a viable option in many instances.
The level of OTC remains high in France. At a time when many insurers are committed to maintaining the average cost of the loss, policyholders must still have the means to buy the materials necessary to carry out repairs themselves. These solutions must continue to reflect the reality of the actual cost of repairs.
Reparation in kind
In reparation (REN), networks are struggling to meet demand. While this is an option for small claims, it is not suitable for claims that are more costly, where it would be very useful. The insured must rely on experts to suggest building companies with which they collaborate regularly. Working with responsive service providers saves time, and as we have seen, allows better control of the total cost of construction sites.
Reusing materials on buildings less than 10 years old can be complicated due to warranty periods, but reused parts are not less efficient than new materials despite those concerns. There is development that could allow a broker or repair professional to access a database and consider alternative options. The initiative proposed by Opalis is an interesting initiative.
The compensation principle
At a minimum, we return the property to a pre-loss state but as the landscape changes, we may be able to take additional steps to go beyond repair and focus on improvement. However, we could go further and help improve some buildings when they are being repaired, which could be similar to prevention in other areas. Assuming it does not cost the insurer more, one could imagine taking steps during the work phase to prevent future issues.
Today, insurers do not often consider these additional factors when it comes to repairs. To change the narrative will require a change in mentality — among both experts and insurers — and in the regulatory landscape. While we continue to move faster on the quantification of damages, we anticipate upcoming challenges related to quickly and cost effectively restoring property to its pre-loss state. We’ll continue to search for methods of building improvement, especially from a preventive standpoint, as an avenue for success in years to come.