Verisk's enhanced European demand surge

The enhanced European demand surge framework was first implemented in the Touchstone v11.0 release in 2023. This methodology differs significantly from the industry loss-based framework (legacy). In this framework, demand surge is broken out into two components: cost inflation and labor disruption. The final demand surge factor for a given event and country is based on these two components.

Cost inflation here refers to post-event construction cost inflation—that is, a measure of the cost trends on a national level for0 labor, material, and overheads. The default value in the long-term average in this implementation is a single fixed percentage for each country within a given relevant model domain. Users can edit this value in the Demand Surge section of the Admin ConsoleAdmin Console workspace in Verisk Synergy Studio.

Labor disruption measures the local disruption to construction labor costs. This is done on a per-peril and country basis. The labor disruption for a given stochastic year is estimated based on the event with the highest density of damage per country for that stochastic year. For each country, Verisk has derived a log-linear function into which the damage density estimate is input, and the output of that function provides the labor disruption hazard impact (as a percentage increase in rebuilding cost). For stochastic years which do not have high enough damage density for any event in said year, there may be no labor hazard disruption factor for that year.

Related, for this implementation, if labor disruption is zero, cost inflation will also not apply. The log-linear functions used to calculate labor disruption are hard-coded and, therefore, users cannot edit or customize the functions. The final demand surge factor for a given event is calculated as 1 + (cost inflation percentage) + (labor disruption). This factor is then applied to all ground-up losses within a relevant country, regardless of coverage.