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Auto Insurance Declaration Page. Demand surge is defined as the demand for products and services exceeding the regional capacity to efficiently supply them. This phenomenon is relevant for both Christchurch post earthquakes, and for the east coast of the USA post Hurricane Sandy. It is a common phenomenon around the world, post natural disaster. Demand surge is relevant to all affected policyholders in that the need for disaster relief and recovery supplies increases dramatically due to shortages and increased demand, forcing the cost of these goods upward as people rebuild. Post disaster insurance dollars pour into the affected region, but rebuilding is limited by materials and worker shortages. These in turn lead to rising wages and sometimes very substantial material price increases. Construction materials and costs (e.g. steel, timber, cement, building materials such as gib) are usually the most visibly effected by demand surge but energy prices for oil and gas may also rise.

Around the world demand surge post disaster can be seen whether the disaster is a result of flooding, windstorm, hurricane or earthquake. It is clear that the equilibrium of demand and supply becomes unbalanced. Examples of earthquake events that have seen demand surges were seen as early as the 1886 Charleston, South Carolina Earthquake (U.S.) which created a demand for labour that far exceeded the local supply. Wage rates for both skilled and unskilled labour increased dramatically above pre-earthquake levels. Auto Insurance Declaration Page. . The heightened wages and labour shortage had a knock on effect and created a long waiting list for repairs which not only caused severe hardship for owners but increased the loss at the property (due to deterioration over time or further damage) which in turn led to shoddy and inadequate repairs. We are currently experiencing exactly this scenario in Christchurch. Without a strong mechanism for the control of construction quality, materials and labour pricing, residents face a frustrating time ahead.

In 1906 the San Francisco Earthquake and Fire (U.S.) presented other demand surge challenges. The construction costs increased immediately after the event and led to larger insured losses than expected. The capacity constraints for labour and material drive the price fluctuations and substantially increase reconstruction costs as the demand rises for building contractors to repair the damage. The increasing cost of repair work, because of the shortage of materials and labour, leads to higher claims. And the more widespread the damage the greater the price for the rebuilding resources. Consequently contractors raise their bid on reconstruction projects and this leads to incredible price increases, sometimes twice as high as they would have been in a competitive market. Auto Insurance Declaration Page.

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