Assessing demand surge for future events in Europe

Future events in Europe may be influenced by evolving economic conditions, labor mobility, and improvements in construction cost data.

Enhanced data availability and a better understanding of regional dynamics are essential for refining demand surge estimates and improving the accuracy of loss projections for future catastrophes.

The discussion starts with a close look at the European economic data behind demand surge and how the scope of labor and materials markets are quite different. This leads to a broad inflation effect from the materials market that increases all claims, and a local effect that may or may not affect subsets of claims.

The case studies provided a look at the available data that could support the idea of European ETC demand surge. The 1990 and 1999 seasons showed evidence that there was both a construction materials demand surge effect and a local labor demand surge effect, but in 2007 only showed evidence of a construction materials demand surge effect.

It is also possible that construction worker freedom of movement within the EU having evolved over time played a role. In 1990 labor movement would have been restricted compared to 2007 when Eastern European countries were joining the EU. The ability of construction markets to respond to increased demand was limited in 1990. The same events may have had a lower price response had they occurred more recently—something to keep in mind when considering the historical data, pre-Brexit. We could see the same response in the UK in the future, however, if the same circumstances were to arise. There were other sources of loss inflation on top of this. After Lothar and Martin, there was evidence that claims were artificially inflated due to less rigorous adjusting to speed up settlements. This would have to be considered in addition to the economic demand surge.

Key to understanding demand surge related to future events that affect Europe is the improving quality and availability of national construction statistics. In addition, detailed labor and materials construction cost data is becoming available for several countries outside the U.S. from Xactware. This will be valuable information for evaluating future events in Europe and around the globe and will provide a more nuanced look at what demand surge could be in the future.

The default implementation for material demand surge and current economic conditions is 3% in Europe for all perils and countries. The default value can be changed to reflect current economic experience, supply chain issues, or government intervention that may lead to delays in claim settlement time. For demand surge triggering events in the EU, it is assumed that settlement time can take 1-2 years on average for most perils.