The damages from Hurricane Ian remind us all too well of the potential costs associated with a major Category 4 Hurricane. How can you predict the cost of recovery and why does it seem to cost more than estimated property values?

Commercially speaking, estimating the cost of a future build can be quite different from calculating the cost of recovering a building given conditions may be worse and extremely difficult to manage.

Why The Difference?

Circumstances in a recovery operation generally are met with obstacles beyond our control.

Consider these scenarios:

• Limited to no access initially to a property.
• Interruptions to access due to “search and recovery” efforts.
• FEMA-only contractor access.
• Housing is non-existent in close proximity to the affected areas.
• Traditional means of approach may be limited: bridges are out and/or roads are covered with storm damaged properties, boats and other debris.
• Traffic builds and long lines to gain access to an area like Sanibel or Fort Myers Beach is sometimes hours in every direction, escalating labor costs and efficiencies.
• Power, water and waste services are unavailable for days or weeks.
• Portable power generation can be costly. Fuel prices alone escalate recovery expenses. Without it you are dealing with unsafe jobsites, no ability to stabilize buildings, and adverse environmental conditions.
• Roofs are compromised and temporary roofs need to be put on before a replacement roof can be completed.
• Storm displaced sand needs to be put back. Existing sand needs to be sifted and cleaned, separated from storm debris.
• In order to fix anything, massive efforts are made to get it to points of evaluation such as:
  • Moisture mapping of a structure
  • Evaluation of existing materials which could trigger abatement remediation
  • Protocols may need to be written by an industrial hygienist and perhaps pass clearance testing prior to rebuild
  • Elevator pits and equipment assessments
  • Pools and other recreational equipment
  • Kitchens and coolers are trashed
  • Walls are knocked out and all the mechanical, electrical and plumbing may have to be replaced
  • Fire suppression is not available
  • Existing conditions make for a tight workspace while repairing a structure
  • Displaced cars, equipment, and docks may need to be cleared
  • …and the list goes on.

• Repairs are met with limited access to contractors due to the demand.
• The cost of lumber, drywall and other materials is not available or has seen costs rise due to limited availability.
• Many items need to be accessed and taken out due to contamination from black water and then cleaned and sanitized prior to replacement.

 Insurance Cost Impacts

On the insurance side, Owners want to be prudent to buy enough insurance to meet the replacement/repair costs of recovery without paying for too much to escalate the annual cost of premiums. Many of the properties GRS Disaster Response has explored in helping with the recovery process found that insurance limits were quickly reached due to the severity of the losses. With roofs partially or completely torn off from wind and an 18-foot storm surge ripping the lower extremities of a building apart, the damages can be severe, and this does not include the cost of business interruption.

Prior to an event, most businesses are in full swing operation with trained employees, inventories of products or supplies, etc. Cutting further into the cost of the facility recovery is the replacement of income from the loss of sales and profits. Losing employees during a time of shutdown could also challenge the recovery of a business beyond the rebuild. A candid conversation with your insurance broker is a critical step. It is a balance, but the alternative could be devastating.

Maryann Johnson, Senior Managing Director, Property & Energy Claims at Brown & Brown Risk Solutions had this to say:

 “For business and real estate owners it can be difficult to comprehend the impacts and devastation from a large hurricane or other natural catastrophe, what a recovery operation will involve and the obstacles that will inevitably arise. Having the right resources is critical. A large national firm who specializes in catastrophe response is important to assist with temporary utility services and prompt mitigation activities followed by repair. These are crucial to the overall speed of recovery and to limit damage. 

 Another important resource is a claim preparation firm/forensic accountant. They will assist with the loss of business income calculation as well as being able to put together claim submissions needed to support advance and partial payments.”

Broker Property Claim Advocates who are available to assist client “insureds” with issues on the claims process and any coverage concerns that develop are also a critical team member.

It is important to have agreed contracts in place ahead of time so that you will have priority servicing in the event of a large-scale catastrophe which will allow for securing of needed resources (equipment, supplies & labor) for mobilization to your site immediately post loss.”

Broker Property Claim Advocates who are available to assist client “insureds” with issues on the claims process and any coverage concerns that develop are also a critical team member. They can assist with identifying available sublimits for coverages that will come in to play in a typical catastrophe situation, such as Code coverage, Land Improvements, Mold, Expediting Expense, etc. as well as the ability to assist with securing advance and partial payments throughout the loss adjustment process.

Further Lessons Learned

To learn more, we’ve identified some additional lessons learned when it comes to understanding the cost of recovery:

• Flood protection around elevators and other key areas that house electrical, mechanical, and critical equipment is vital.
• Elevators should be staged on an upper floor but not always the top due to the resulting positions of cables and weights.
• Breakaway walls are crucial to allowing water to provide a pass through to relieve pressure and maintain structural integrity.
• Even the largest of buildings may not provide a viable safe haven for sheltering in place.
• What you witness during the event, you cannot unsee. Those that are overcome by the water and waves from a lower structure may parish during the event.
• New FEMA maps may limit the type of construction and dictate the height of the structure where people can inhabit.
• While your building may survive, another person’s building may damage yours.
• Anything that can be moved and taken away from the path of the storm should be moved.
• Your life is worth more than material things.

Lots of lessons can be learned from a major event. Rapid response requires a plan. Those that plan well ahead of the event will have the benefit of being proactive and not reactive.

In the end, a successful response and settlement of the claim will require a team of experts working together to provide the expertise to bring a property back to per-loss condition.  Documentation is a critical piece of an insurance settlement.  Providing an open book well documented invoice with back up is the philosophy that GRS has endorsed.  Providing the client and all workers a safe workplace in the midst of all the damage and confusion is core to our culture at GRS. Be safe all.

Republished with permission from Gilbane Co.

https://www.gilbaneco.com/blog/disaster-recovery-reconstruction/understanding-the-cost-of-recovery/