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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Thanks for Reading!

The DRQ Team!

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