January 28, 2015
What is Demand Surge?
Does this home have enough demand surge coverage?
What is Demand Surge? How does demand surge affect my home insurance price? Why should I care about Demand Surge? What is the principal of demand surge?
What Exactly is Demand Surge?
While certainly not a common insurance related questions for Insurance Brokers, Demand Surge is a very interesting and important topic. The IRMI (the international risk management institute) definition of Demand of demand surge is: the “Increase in the cost of repair or replacement of damaged property that may occur following a large-scale disaster” (think earthquake, wildfire, flood, etc.) “when many individuals and organizations vie for a limited supply of labor & materials needed for repair.”
The principal of demand surge is that things are likely to be more expensive when a whole block burns down as opposed to just one house. Think of it this way – if one house needs to be rebuilt, you may require about 50 various labors to rebuild that house which easily can come from your home county and maybe even your own city, however, if 45 homes burn down, where will 2,250 contractors and employees suddenly come from? Most likely they will either have to move to, or near, your community, or commute from a much farther area in order to work rebuilding your home. Another factor is supplies, lumber and roofing materials are likely to be far more expensive in the above situation. This will undoubtedly cost you more money to rebuild your home. This is the general concept of Demand Surge.
When you buy your insurance policy you will have a dwelling amount that represents an estimation of what your house costs to rebuild. Your Insurance broker or Insurance agent may have used a cost estimator program and used some of the details and characteristics of your home to compute this. On top of this dwelling amount, a typical homeowners policy is likely to have an extended replacement endorsement amount which will add coverage if this dwelling amount is NOT enough. I typically see a 25% rebuild amount. The range of extended rebuild endorsements often go from 0% to as high as 100% from my experience. The range may partially depend on the state in which you reside in.
The purpose of this extended endorsement is really for many reasons, one of them is to cover Demand Surge costs when rebuilding your home. At my firm, the dwelling amount, combined with the Extended Rebuild Endorsement, along with another couple of endorsement such as Ordinance and Law, are of prime importance to us because when your house burns down the last thing you want is to have to pay for it out of pocket because an Insurance Broker located perhaps far away and the Insurance Company located in another state did not have a good feel for San Francisco Bay Area rebuild costs.
Buyers of Home Insurance should be prepared to understand the need for demand surge ‘protection’, especially in areas that are more open to large scale disasters such as forest fires. Be protected from some of the cost from demand surge by first understanding how your insurance coverage amounts work, second confirm that they sound reasonable to you, and lastly inquire with your insurance broker about adding additional extended endorsement coverages to your homeowners policy.
a Marin Insurance Broker
Scott W Johnson
Marindependent Insurance Services LLC – 0K10734
Independent In Marin County and the San Francisco Bay Area – Broker – Agent – Home – Term Life – Umbrella – Small Business – Auto
Kindly see our disclosure. Reading about insurance is not a replacement for speaking with an insurance agent.
