40 Years of Restoration

When Hurricane Katrina stormed ashore last year, ravaging the Gulf Coast, an estimated 275,000 homes were damaged or destroyed. Several months on from this disaster, the rebuilding continues with no end in sight.

Insurance industry groups now estimate property insured losses at between $40 billion and $60 billion, as a final multi-year tally. If that holds true, Katrina will go down as the most expensive U.S. natural disaster, by far, in terms of insurance losses.

If ever there was an opportune time to be in the insurance restoration business, this is it. And Robb King II, vice president of operations for Florida-based Paul Davis Restoration Inc., acknowledges as much, coming as Katrina did, on the heels of a record 2004 storm season in the state of Florida.

“If you look at something like Katrina and New Orleans, you are going to feel it. We are going to see changes in the numbers,” King says. “Florida last year — that also was pretty incredible. Hurricanes usually result in moderate damage in Florida every year. But when you have five go through and they all do significant damage — that’s a little different.”

According to King, with the exception of Katrina in ’05 and the five Florida storms in ’04, the insurance restoration industry has held remarkably steady in terms of residential and commercial activity over the years, despite the increase in property values. Insurers have controlled claim amounts, says King, by increasing deductibles and increasing out-of-pocket costs for insured when named storms are the cause.

Catastrophic losses, man-made or natural, have run at an extremely consistent clip over the past 20 years, he says. Residential losses average between $27 and $30 billion per year, while commercial losses run in a tight band between $14 and $17 billion per year. To his point, King explains that because Katrina was so large it won’t be felt as a single event, but rather as a slight increase over several years.

“We won’t feel the full impact of Katrina for years because it is just so devastating,” explains King. “It sounds totally bizarre. You are going to have your Cats [insurance industry appellation for catastrophes] and your mini-Cats throughout the year. In a way, it is just the normal flow of business that averages in.”

King’s business-as-usual approach in the face of unprecedented catastrophe echoes a distinguishing hallmark of most insurance restoration firms. Since 1966, when remodeler Paul Davis first began tailoring his local business around the specific needs of insurance carriers — in effect creating the insurance restoration market — restoration professionals have made it their business to exert control over their construction business to the extent that they can remain flexible and responsive at all times. Today, when Paul Davis Restoration Inc. screens potential franchise buyers, the company is primarily looking for management attributes along these lines.

“We run them through some screens,” says King. “We want them to get an experience of a couple ‘days in the life.’ We want them to see if this really is a business that they want to be in. It is clearly not for everybody. It is controlled chaos. It is crisis management. Everything is so time-critical. And best laid plans for the next day, and one good emergency fire or flood, can really mess up your schedule.”

The demanding nature of responding to catastrophes and the reality of a stable but slow growing insurance restoration market, have led Paul Davis Restoration Inc., now celebrating its 40th anniversary, to proceed along two key strategic lines going forward, says King. First, the company will solidify its base, bolstering the needs of the company’s 220 franchise owners. Second the company will continue its expansion into the “discretionary” remodeling business.