From Decline to Recovery: An Insider Look at Restoration in 2024 and Beyond

As we navigate through the rest of 2024, the restoration industry faces a complex landscape shaped by numerous economic and environmental factors.

Understanding market trends is crucial for stakeholders—whether you are a national private equity-backed player, a franchise, an independent operator, or a local service provider.

It’s essential to look at where we are, where we’ve been, and where we are going.

A rocky start

The first half of 2024 presented significant challenges for restoration contractors.

First quarter of 2024reports indicated a 15.2% decrease in total cases received compared to the first quarter of 2023, primarily driven by a 30% decline in weather-related business. The number of major disaster declarations in the first quarter of 2024 dropped to five compared to six during the previous year’s first quarter. Crawford & Co. reported a staggering 44% drop in operating earnings, reflecting the financial impact of decreased claims.

The trends continued during the second quarter of 2024, with a 19.2% decrease in case volume compared to the second quarter of 2023. The quarter saw 17 major disaster declarations, a significant drop from 27 in the previous year’s second quarter, affecting weather-related claims and restoration work. Combined ratios for major insurers improved, with Allstate’s ratio dropping from 96% in the first quarter to 93% in the second, indicating reduced claims payouts and fewer restoration opportunities. The National Fire Incident Reporting System (NFIRS) data also showed fire incidents declining by 6.2% compared to the second quarter of 2023, further emphasizing the reduced demand for restoration services.

Signs of recovery

As we entered 2024’s third quarter, data from Gallagher Re indicated that global insured losses from natural catastrophes reached US$108 billion year to date through Sept. 30, slightly above the 10-year average. Frequent low-to-midsize severe weather events drove this increase, particularly in the U.S.

The U.S. property/casualty industry experienced an improved net combined ratio (NCR) of 99.4, indicating better-than-expected underwriting results. Homeowners’ 2024 NCR of 104.9 showed a 6-point improvement compared to last year. This suggests that while overall claims were down, the potential for recovery exists, especially with the arrival of significant weather events.

Anticipating growth

Looking ahead into the fourth quarter, the restoration industry appears poised for a rebound, mainly due to the impacts of Hurricanes Milton and Helene. These storms are expected to increase claims substantially, particularly in affected markets, leading to a spike in emergency restoration work.

ATI Restoration anticipates a significant spike in emergency work through the remainder of 2024, resulting in a large backlog of construction work that may extend into 2025 and beyond. This backlog will likely include several more significant, complex claims that can sustain our operations for an extended period.

As we head into the fire season, states like California, Texas, and Colorado will likely be significantly impacted. This seasonal risk will further influence the demand for restoration services, as wildfires can lead to extensive property damage.

Opportunities and challenges

As we look to the future, several factors will influence the restoration industry:

• Economic conditions: Understanding the interplay of interest rates, inflation, and market demands will be critical. Rising costs and economic uncertainties can impact profitability for restoration contractors, making proactive planning essential.
• Weather-related events: The industry’s reliance on weather patterns makes it susceptible to fluctuations. However, significant weather events can also create increased demand and revenue opportunities.
• Geopolitical factors: Escalating geopolitical tensions may introduce additional layers of uncertainty. Stakeholders must remain vigilant and adapt strategies to navigate these complexities.
• Merger and acquisition (M&A) activity: A predicted increase in M&A activity in the next couple of years may create opportunities for restoration companies looking to expand or consolidate. Companies with strong operational models and solid market positions will benefit.

The restoration industry is at a pivotal moment as we move through 2024. While the year’s first half presented significant challenges, current trends suggest the potential for recovery and growth in the coming months. The anticipated impacts of Hurricanes Milton and Helene, coupled with ongoing wildfires, may provide the industry with much-needed opportunities.

Understanding market dynamics, leveraging data insights, and anticipating future opportunities will be crucial for all players in this sector. Restoration contractors can survive and thrive in this evolving landscape by staying informed and adaptable. Whether you are a large national player or a local independent, understanding these trends will help you navigate the complexities of the market and position your business for success.