By Rygo Foss, Legal Counsel of Skyline Restoration Inc* – 2012 was filled with surprises having enormous implications on the construction industry. No shortage of drama. So with it, were you surprised? In a relatively short three years, the industry’s concept of normal and non-normal (whether environmental or policy), is changing. Is your “surprise” threshold getting a tough exterior?
We are so familiar with Sandy that it’s now a one-word name, no hurricane or tropical storm debate necessary. It’s not relatively shocking that our devastation ranks only behind Katrina in damage. Finding estimated dollar impacts is easy. A quick Google search shows estimates of $50B – $60B (projected by EQECAT, a catastrophe risk management consulting firm) overall and an alarming $32.8B of damage and $9.1B in mitigation and prevention costs in New York State alone (via Governor Andrew Cuomo).
Congress has been “working” through a Sandy relief bill but all that Obama has signed is a $9.7B replenishment of the national flood insurance fund (as of 01/15/13). Where is the rest coming from, private insurers? Likely not, private insurers are expected to pay only $5B to $15B (according to the Insurance Journal) and will have only limited ratings and premium impacts. Why? To stay simple, most of the burden on these insurance companies will remain with the re-insurers that until-now, had extremely strong years (ratings) but more importantly, the flood restrictions on most policies will defeat most of the likely claims (payments and premium stability).
So back to the surprise. Federal funds are going to the people (rightfully so), but using basic elementary mathematics, the low estimated damage of $32B in New York, and only $5B of recovery from private insurers and $10B from the government leaves a loss of $17B. This difference will come out of the pocket of our industry – construction and real estate. There is a good probability that more government aid will follow, however, for our industry, there is likely going to be little to no further relief.
So that begs the question, what do we do? With Hurricane Irene not far out of our rear-view mirror and what is seemingly becoming routine, are our options now to either load up on insurance or take the gamble on what is now becoming an ever-so-prevalent risk?
Between pollution, flood, business interruption, equipment, general property and causality, builder’s risk, general liability and whatever new insurance products arise in the future, are we expected to get all of these — or stay status quo and chalk up the risk as another unforeseen surprise?
Fiscal Cliff Impacts on NYC Construction
New York City history has never been short of political risk but our era is bringing in new challenges. Although we’re finally seeing some stability in the financial, employment and housing markets, Washington is keeping us guessing on key decision-making metrics. Between tax policy, interest rate questions, uncertain infrastructure projects, our industry is constantly affected by the unknown, and once known, the potential for “surprise.” Nothing displays this better than our fiscal cliff concerns and our now annual “debt ceiling” discussions. With Washington at an annual impasse over what have historically been routine decisions (that being another discussion) our industry has to keep even closer tabs on the issues on the table and determine how the outcomes will affect us and our clients.
Are the smaller paychecks going to affect the average worker’s demeanor? Will the tax hikes affect small business owner’s aptitude to invest, grow, and employ? Will the property owners invest on projects that will eventually be necessary, but hold off until that necessity arises? Will the industry grow as whole, add more competition, or consolidate? What is the best for the industry?
The only certainty for our current times is surprise. And with that all our obligations to the city of New York to be prepared for these surprises. Although none of us can be sure, we can be conscious of the new reality of surprise, and be ready for the forks that will inevitably arise.
I don’t know the answer but I do know that surprise isn’t what it used to be.
*Rygo Foss is the Legal Counsel of Skyline Restoration Inc. Since its inception in 1989, the Greek-owned Restoration company has built its sterling reputation on the hard work and dedication of every person of its staff. Skyline is the largest restoration firm in the New York metropolitan area, having completed construction work on over a thousand residential, commercial, industrial and institutional buildings.