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Am I Underinsured? Understanding the Impact of Demand Surges

June 12, 2021

Natural disasters such as wildfires, hurricanes, state wide winter storms as well as the recent global pandemic are perfect examples of the world being unpredictable. Because of natural disasters like these, it’s important to reevaluate your insurance policy and make sure you’re not underinsured.
The entire purpose of insurance is to protect yourself from unpredictable unknowns. Unfortunately, we all got a taste of unpredictable unknowns during 2020 and early 2021. We are still reeling from the effects of a global pandemic, both socially and economically. One major economic consequence of a pandemic is demand surges.
Imagine a scenario: you lose your house to a wildfire or other natural disaster. A total rebuild is necessary. You turn in your insurance claim. But because there’s a demand surge in your area, suddenly, you may no longer have adequate coverage to cover all the costs you need to get back on your feet.

Demand surges can impact your insurance rates, deductibles, and payouts.
Whether it’s renter’s insurance, homeowner’s policy, medical insurance, health insurance, car and truck insurance, or overall insurance premiums, you could find yourself underinsured.

Bosworth & Associates Insurance in Tyler, Texas, wants to make sure you understand the impact of demand surges and how they might affect you.
Too many people don’t even realize what’s covered in their insurance policy. Let alone realizing that recent events might mean they don’t have enough coverage to fully recover from the loss.

So, what is a Demand Surge?
Chances are, if it’s a term you haven’t heard before, it will be one you will hear more often in the future.
Climate change is causing shifts in weather conditions. Because of this, we’re seeing much more extreme and damaging storms and natural phenomenon such as massive wildfires, hail storms, winter storms, etc.
In addition, the global pandemic has caused a massive surge in construction and building costs.

Here’s a breakdown:
When a natural disaster occurs, there comes a surge in demand for certain goods and services, especially household necessities and construction services.
Remember your high school economics class?
Remember supply and demand?
It’s the same concept with a Demand Surge.

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The surge in demand for products and services leads to shortages and, inevitably, higher prices.
A primary cause for this recent demand surge is due to the consequences of the pandemic. Because the pandemic caused a spike in unemployment, goods and services are harder to come by.
There are less workers to harvest and refine construction materials, less workers to transport construction materials, and less workers to do construction and building work. The pandemic has impacted almost every industry in this way. With less access to laborers and materials, the demand for them surges, increasing their value and costs.

Demand surges impact your insurance as well.
When a large amount of claims are suddenly made at once, it puts a significant financial burden on the insurance companies.
Especially in severe incidents such as homes destroyed by wildfires or a pandemic that causes a sudden loss of wages at the same time as a demand surge, policyholders want a full settlement to cover the entire extent of the claim.
However, some current insurance policies on homes might no longer have high enough limits or adequate coverage to cover the costs it takes to build/repair/sustain the home’s current value. Construction costs are likely higher now than when the policy was originally written. Unfortunately, this leaves people underinsured.

The current surge in demand for building materials that began during the early days of the pandemic has only increased today due to numerous factors.
One is an increase of home renovation projects and a skyrocketing amount of homes being built.
A statistic from the National Association of Homebuilders shows that the price of lumber has increased 250 percent in the last year.

If someone needs to have their home rebuilt, it’s going to cost a lot more than when they originally insured their house. For many, this is simply not affordable.
You might suddenly find yourself underinsured even if you were adequately covered a year ago.

How to protect yourself?
Discuss Demand Surge protection with your insurance agent.
In this case, forewarned is forearmed. The sooner you take action to protect yourself, the more confident you can be that you’ll be fully covered in the case of an incident and the necessity of turning in a claim.
Ask your insurance agent about an increased replacement-cost endorsement. With residential homeowners, this is also known by the names Extended or Guaranteed Replacement Cost Insurance. This could help protect you as a homeowner from increasing building and construction costs.
Analysts don’t believe this is a one-off incident but rather an ever-increasing trend.

Being aware and on top of protecting yourself against demand surges could save you thousands of dollars.
Contact your local insurance agent today and ask how they recommend you best protect yourself from demand surges and the cost of being underinsured.

Bosworth & Associates has been selected for the 10th year as a Best Practices agency.

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