For nearly 10 years, I have presented my thoughts on expectations for the future in the disaster restoration industry with a primary focus on the next year. In my position as a business advisor to the industry and my 36 years of restoration experience, I try to identify the top issues that will impact restoration professionals in the near future.
The past several years have been a challenge in identifying trends for several reasons. The first is that the world has had unprecedented events with COVID-19, the lockdowns, labor availability, inflation, supply shortages, and more. The consequences of these changes have been complex. The second and now more relevant issue is the speed of the changes being presented. Technology and communication are moving literally at the speed of light, and this will require business owners and leaders to be nimble and disciplined in setting and managing the direction of their businesses.
When I first started writing my predictions, they were used for my Business Mentors newsletter, and I was able to write and publish at my leisure and after the year was complete. I am thankful C&R Magazine has picked up the series, and I have an editor to make necessary changes; the bad news is that I now must operate on deadlines and publishing schedules. I am writing my review on the current year with the final quarter to go, and several key issues may impact the accuracy of my thoughts. I will offer you, the reader, the ability to fill in any missing elements. I feel that grading my predictions is relevant to establishing credibility for my thoughts in the coming year. When I think about the critical issues that impacted restoration last year, I believe that I still have some credibility, but you can be the judge of that.
Prediction Trend #1 – Increasing Interest Rates
Original prediction: It appears as though interest rates will continue to increase through at least the first quarter and perhaps longer, though the increases will be slower than in the past six months. The current higher rates will impact small and large businesses in the first part of the year. Ironically, you may even see rates cut again by the end of next year due to political pressures.
Grade commentary: The trend of interest and inflation were obvious and relatively easy to predict and are fully connected. My recommendations of speeding cash and limiting debt were solid business recommendations for an increasing interest environment. It is difficult to predict the moves of The Federal Reserve, but the writings of the President of the Fed, Jerome Powell, show that at this point, he is committed to limiting inflation and raising rates. I thought maybe the rate increase would stop and even be reversed, but I was off on that expectation because overall economic growth and inflation have been steady.
Prediction Trend #2 – Continued Inflation
Original prediction: I expect inflation to become very volatile throughout the year. The nature of employment, debt, and regulation will lead to booms and busts in prices. This will likely lead to disinvestment in some areas of the economy, which will impact supply chains. Does this sound confusing? In a market economy, the cure for high prices is high prices and visa-versa. In a managed economy, it leads to uncertainty with a bit of chaos mixed in.
Grade commentary: My grade on this subject is a bit nuanced due to my recommendations and details on the expectations. It is true that inflation remained high for the year. Last year, construction price increases were in double digits; this year, they are very high but have slowed. I predicted the construction in Florida would drive material prices through the year, and construction would slow due to the economy. I was wrong on both of those points. From my understanding and experience, there are many properties in Florida that have not been started – I find that to be remarkable. I also predicted a recession in construction. Prices are high and have stayed high, and my thoughts for handling this inflation are still 100% accurate, but the competition and price drivers were not. New construction is strong in many areas of the country, and demand for materials and labor remains strong.
Prediction Trend #3 – Changes to the Insurance Market
Original prediction: Inflation, interest rates, stock prices, and recessions have a complicated impact on insurance. Rising costs due to inflation will require higher premiums, which may be complicated in a recessionary environment. Some of the likely impacts will include:
- Higher deductibles and more self-insurance.
- Lower quality of policies with more restrictions or exclusions.
- The continued presence of consultants on larger projects.
- Renewed desire for cash outs and quick settlements.
There is a potential in some markets to encounter properties that are underwater with equity
Grade commentary: As stated in the prediction, this is a complicated subject. I have read a handful of articles covering the situations above, but I do not have any first-hand accounts that substantiate these issues. The complicated relationship between economic factors and high employment has prevented some of these issues. I have heard of many cases where the properties are not properly insured, or deductibles have increased. I have even heard of a couple of cases of co-insurance being forced, but these are not very common. There have been enough discussions of challenges to insurance markets that this was a relatively accurate prediction, and the business practice recommendations were right on.
Prediction Trend #4 – Labor
Original prediction: This is the first year that labor availability will not be a major limitation to growth. The only difference this year is that this should not be as substantive as previous years. There are several competing issues that will impact this trend. Residential and commercial construction will slow due to the rapid increase in interest rates. This impacts new construction and remodeling. Cracks are showing in the overall labor market, which will increase the supply of managers and even frontline positions. In 2009, several contractors mentioned that they were able to find amazing candidates to fill some of the top management positions in their company.
On the other side of the equation, the supply will be constrained for skilled positions, especially for construction staff. There are at least two drivers in this area. The first comes from the reality that for every five construction workers who retire, they are replaced by only two new workers. The other factor is the massive amount of government spending on COVID-related bailouts and infrastructure spending. Trillions of dollars have been budgeted, and much has not yet been spent. This will require many workers for municipal and other commercial projects.
Grade commentary: I am torn on my grade for this subject. I was generally right about the ideas of labor, but I also found several inconsistencies. The first is that the construction market did slow, but it has still been strong. Sales of existing homes dropped substantially, but new construction has continued strong due to a lack of available housing. Remodeling also remained strong throughout the year. I heard from many that they could add great managers, marketing staff, and other management positions to their business. I heard from many that finding team members was not as much of a constraint as in the past. Locating skilled construction labor was a substantial problem that will continue to be an issue as far as I can see. I recommend you look at my recommendations on this subject from last year, as they are still very relevant to your business today.
Prediction Trend #5 – Technology
Original prediction: Currently, there are more than 60 software solutions in the restoration toolbox, with more continuing to be added to the mix every year. This process will continue for the foreseeable future. The complicated and disparate nature of each solution will prevent consolidation soon. In the longer term, there will be consolidation and options for more synergistic solutions as these systems become more widely accepted, and common ownership will drive consolidation. For the next year, more great solutions will be added to the mix, and instead of 60 solutions, there may be 80. The software will move closer to work being completed rather than an office function or post-activity review. Examples would include Encircle, automatically creating dimensions and tracking psychometrics, or the Actionable Insights’ Actionable Profile to manage compliance or estimate thoroughness and accuracy at the point of entry. This saves time and removes steps from the process.
You can also expect InsurTech solutions to start to bleed to the contractor side of the industry. HOMEE is integrating cutting-edge loss data, service providers, professionals, and insurance companies to property damage. This technology reduces steps and substantially reduces cycle time. In the insurance claim fulfillment process, this technology is reducing some processes from days to minutes. This will facilitate providers getting to the damaged site much quicker in many cases. Keep an eye on this company and other cutting-edge technology providers. You can also expect virtual reality and artificial intelligence to change the education and training process dramatically. This will be a longer evolution as the technology is relatively expensive, and the restoration market is relatively small. Expect enhancements in training in the next few years.
Grade commentary: While I suspect that some will say that I missed the Generative AI trend, I still feel this did not greatly impact the industry this past year. It is a useful and relevant technology that first adopters will reap the benefits from; at the same time, this has not been a disruptive technology in the past year. Technology, in general, has continued to evolve and become more impactful over the past year and has moved from being niche and novelty to mainstream. Some programs have started to integrate, removing activities from the restoration process and improving communication and accuracy. The number of programs has continued to increase, but not perhaps at the quantity alluded to in the prediction, but it was substantial. The speed of new technology has been increasing and will not slow down in the years to come. If you are a larger company, you may look to add a Chief Technology Officer to your company if you have not already.
Since I am early to the review part of my predictions, I will now add the fine print to this article.
2023 Known Items:
- The commercial real estate market is in trouble in many large cities.
- Inflation has stayed high for more than one year but is slowing.
- Corporate earnings have been stable.
- The stock market has had a great year.
- Interest rates have increased substantially.
- Gas prices are increasing across North America.
- Personal debt is up, and savings are down.
- Residential real estate is stagnant due to high interest.
2023 Unknown Items:
- Government shutdown – as I write this article, the discussions between the various branches of the U.S. Government appear to be stagnant. I believe we will see a shutdown, but that will likely be resolved by the time this article is published. The length of time may impact interest rates, the stock market, and part of the GDP.
- UAW strike – this strike appears to be challenging, with both sides being far apart. If the workers get most of their demands, then this may lead to other industries following suit. The UAW has many relevant points that are driven by higher inflation as well as unmet expectations from previous agreements. The auto companies are struggling with the changing automobile designs and current demand levels. This will not be an easy solution either way.
- Interest rates – If the strike and government shutdown are short in nature, then the current interest rate policy will be stable. A longer shutdown or longer strike that has some contagion to other industries may lead to stable or decreasing rates by early 2024.
The current economic environment is very different from past cycles, making predictions difficult. Here is what is different this time around:
- Although the economy is struggling, hiring is strong, which allows for the demand of the consumer economy to be stable.
- Unemployment is low, creating a floor for wages and stabilizing prices.
- Wages are up but not as much as inflation. This has created a stagnant economy – but not declining.
- Consumer spending is up, in part due to higher prices and partly through continued spending.
- The yield curve (difference between 10-year and 3-month bond yields) has been inverted for longer than any time in the last 40 years. Traditionally, this has a very strong correlation to recessions. This predictor of a recession may not be relevant this time due to the items listed above.
When I published my article last year, I mentioned that I hoped I was wrong because many trends were driven by a recessionary environment. Although we did not officially experience a recession, many of the trends were manifest in the restoration business environment. Given the potential calamities that could have occurred, I feel good about our industry and my predictions.
Look for my 2024 restoration trends coming soon.
Check out this article also on C&R Magazine’s website.