The Rising Cost of Claims: Why Restoration Matters

by Phill McGurk (CARSI)

Insur­ance claims costs have risen sharply in recent years, dri­ven by infla­tion, labour short­ages, sup­ply chain issues and glob­al unrest. This rep­re­sents an immense chal­lenge for insur­ers and pol­i­cy­hold­ers as high­er costs lead to more claim denials, under­pay­ments, and dis­putes. Pre­mi­ums are also impact­ed as car­ri­ers pass on increased expens­es.

Accord­ing to Craw­ford & Com­pa­ny, a lead­ing glob­al claims man­age­ment firm, con­struc­tion costs have increased over 35% since 2019. Core dri­vers include dra­mat­ic price hikes for raw mate­ri­als, fuel, and labour. Lum­ber alone has spiked over 40% per Craw­ford’s analy­sis.

But unnec­es­sary claims infla­tion also stems from long-stand­ing indus­try prac­tices, the data reveals. Insur­ers have tra­di­tion­al­ly relied heav­i­ly on gen­er­al con­trac­tors for prop­er­ty repairs. Yet these con­trac­tors spe­cialise in new con­struc­tion, not restora­tion. Their default is often demo­li­tion fol­lowed by rebuild­ing, even when restora­tion would suf­fice.

Spe­cialised restora­tion con­trac­tors take a very dif­fer­ent approach cen­tered on pre­serv­ing and repair­ing dam­aged struc­tures. This restora­tion-first mind­set fre­quent­ly results in dra­mat­ic cost reduc­tions com­pared to reflex­ive­ly tear­ing down and recon­struct­ing.

Craw­ford’s data shows restora­tion firms reduc­ing project costs 25–50% ver­sus gen­er­al con­trac­tors on com­pa­ra­ble claims. These sav­ings come from tech­niques like:

• Sta­bil­is­ing and brac­ing dam­aged sec­tions instead of demol­ish­ing
• Dry­ing and dehu­mid­i­fy­ing water-impact­ed areas rather than gut­ting
• Repair­ing and encap­su­lat­ing mold dam­age instead of rip­ping out all affect­ed mate­ri­als
• Selec­tive roof­ing and sid­ing repairs rather than full replace­ment

Major sav­ings also come from restor­ing con­tents and fix­tures ver­sus replace­ment.

One strik­ing exam­ple revealed an 85% cost reduc­tion by util­is­ing restora­tion, per the report. The orig­i­nal rebuild esti­mate was $1.2 mil­lion. But the restora­tion firm ful­ly repaired the fire-dam­aged com­mer­cial prop­er­ty for just $140,000. (exam­ple sup­plied by CARSI)

Such out­sised sav­ings are not rare anom­alies accord­ing to the data, which con­firms con­sis­tent cost reduc­tions. Bet­ter edu­cat­ing claims adjusters on when restora­tion is appro­pri­ate presents a major oppor­tu­ni­ty. Like­wise, part­ner­ing direct­ly with proven restora­tion firms before cat­a­stro­phes hit can pro­vide crit­i­cal cost mit­i­ga­tion.

Pre­mi­ums are dri­ven sub­stan­tial­ly by claims costs and loss ratios. As infla­tion dri­ves up claims, con­trol­ling expens­es through smarter use of pro­fes­sion­al restor­ers pro­vides an avenue for sig­nif­i­cant effi­cien­cy gains.

The report con­cludes that “restor­ing vs. remov­ing and replac­ing offers huge cost sav­ings.” Repair-focused restora­tion deliv­ers the opti­mal solu­tion when demo­li­tion and rebuild­ing are exces­sive. As infla­tion con­tin­ues impact­ing the indus­try, this shift towards restora­tion rep­re­sents “a con­cept whose time has come” accord­ing to Craw­ford.

By util­is­ing qual­i­fied restora­tion resources appro­pri­ate­ly, insur­ers and pol­i­cy­hold­ers can joint­ly ben­e­fit. Craw­ford’s data pro­vides com­pelling evi­dence that max­imis­ing restora­tion oppor­tu­ni­ties should play a larg­er role in the indus­try’s fight to con­trol sky­rock­et­ing claims costs.

Data col­lect­ed from: 2023 Octo­ber Craw­ford Report

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