Catastrophes like floods, fires, earthquakes, tornados and hurricanes can cause widespread property damage — suddenly forcing families out of their homes and in need of temporary housing. Many of those displaced are eligible for coverage of their temporary housing and additional living expenses through their homeowners insurance policies; our temporary housing division is dedicated to serving the needs of this population, along with the insurance professionals and emergency personnel who take care of them.
Catastrophic events can wreak havoc on the availability of local temporary housing. But even under normal conditions, temporary housing markets have grown in complexity in recent years — making it ever more important to have an expert partner on your side that understands the nuances of the space and has established networks from which to draw. Here, we will highlight some of the trends impacting the short-term housing market and the temporary housing challenges that may arise in the aftermath of a catastrophe.
The U.S. rental market has changed dramatically since COVID. During the pandemic, people avoided shared spaces like hotels to avoid getting sick. The risk of illness, combined with widespread hotel staffing shortages, prompted travelers to instead stay in vacation rentals — significantly driving up demand and rates on websites like Airbnb and Vrbo. Many guests found rentals to be more comfortable and convenient for their families and pets.
Today, hotels are still struggling with staffing issues and have reduced their hospitality amenities as a result. Data shows that travelers who grew accustomed to vacation rentals during the pandemic continue to prefer them over hotel stays.
At the same time, several factors are curbing the available supply of vacation rentals. Today’s rising mortgage rates and construction costs are creating barriers to ownership of rental properties. Additionally, many jurisdictions are enacting laws that restrict homeowners’ ability to operate short-term rental properties without proper permits. This became a significant issue in New York City in September 2023, when the area experienced severe flooding following Tropical Storm Ophelia and displaced residents struggled to find temporary housing.
Changing tides affect temporary housing
Consumer preference for vacation rentals over hotels can pose challenges when it comes to insurance coverage of temporary housing. Increasingly, displaced policyholders are requesting (and expecting insurers to provide) vacation rental accommodations rather than hotels in the immediate aftermath of damage to their homes. The issues here are threefold:
1. Vacation rentals are generally more expensive than hotels — especially when temporary housing partners can secure hotel discounts through their established networks. Use of vacation rentals for temporary housing often increases claim costs.
2. Homeowners insurance policies may dictate set allowances for coverage of temporary housing and additional living expenses. Policyholders who choose vacation rentals over more cost-effective options are likely to exhaust their allowance before their damaged homes are inhabitable again.
3. Families who will be out of their damaged homes for extended periods generally transition from short-term emergency housing to a home or apartment with a limited-term lease (6-12 months, etc.). When policyholders start out in a vacation rental, rather than a hotel room, they tend to settle in and don’t want to move to more cost-effective leased properties, which may offer equal or lesser amenities.
Part of our role as a temporary housing partner to the insurance industry is to stay on top of economic and consumer trends in the housing market and how they impact our carrier clients. With an understanding of the cost factors and psychographics, we can provide professional guidance to insurers on how to navigate these issues and communicate effectively with their policyholders to ensure the best outcome for all involved parties.
Maui fires: location-specific challenges
In August 2023, wildfires ravaged the Hawaiian island of Maui — killing 100+ people, destroying over 2,000 buildings, causing around $5.5 billion in damage, and leaving more than 7,000 people homeless. Temporary housing for Maui’s displaced residents was (and, months later, remains) a dire need.
The post-wildfire housing crisis in Maui has been compounded by factors that far exceed the standard challenges of a CAT event. The whole island is about 730 square miles (1,880 square kilometers) and inter-island travel is not easy, so available resources are limited. Because Maui is a high-end tourist destination, hotel rates are pricey. Additionally, a large percentage of Maui’s residential properties are vacation rentals, and many homeowners hesitated to commit to longer-term guests for fear of losing out on peak-season tourism income. (Financial incentives provided by various government agencies are helping in this regard.)
Despite the many obstacles, the Sedgwick temporary housing team has helped hundreds of displaced Maui residents in their time of need. Thanks to our 24/7 concierge service, established relationships with hotel chains and strong network of contacts in Hawaii, we’ve worked with multiple insurers to secure safe short- and long-term accommodations for their policyholders. Our team has also assisted in setting up leases for dozens of families so they can be settled until their homes are rebuilt. Our 27 years of experience in post-catastrophe temporary housing have served us well in identifying creative solutions to seemingly insurmountable challenges in the aftermath of the devastating wildfires.
In it for the long haul
Building materials must be imported from the U.S. mainland or Asia. And in an environment with many competing for limited resources, the rebuilding of structures contributing to the island’s economic recovery may take precedence over single-family homes.
Regardless of how long the recovery takes, Sedgwick is committed to being there to support our clients and their policyholders on Maui. If we can be of assistance to you, please contact our temporary housing team at [email protected]or our property loss adjusters at [email protected].