Insurance Companies Taking a Hit from Hurricane Harvey

Unless you have been living under a rock, you know that Hurricane Harvey is causing unprecedented damage to Southeastern Texas, primarily the city of Houston. The main issue is flooding rains which by the end of the storm could stand at over 40 inches. Some reports estimate that the storm could cost as much as $40 billion on the Texas coast. Adding the costs of repairs to interior Texas and this storm will easily be one of the most expensive ever.

How does this affect the ordinary investor? There are many ways, but the largest is insurance companies. There is no doubt there will be millions of claims from auto owners, homeowners and businesses, looking to get money for the repairs needed.

Today’s post is going to look at the biggest insurance companies in the area and see the impact the storm will have on their business going forward. It will also highlight some stocks that could stand to profit.

Insurance Companies In The Path Of The Storm

There are a handful of insurers in the area that will be affected by the hurricane. On the commercial side of things, here are the largest insurers based on market share in the state of Texas:

  • Hartford (NYSE: HIG)
  • Travelers (NYSE: TRV)
  • Nationwide (privately held)
  • Zurich (OTC: ZURVY)
  • Chubb (NYSE: CB)

On the homeowners and automobile side of things, the following insurers have a large market share in the area:

  • Allstate (NYSE: ALL)
  • Progressive (NYSE: PRG)
  • Travelers (NYSE: TRV)

How This Will Impact Investors

Shares of these companies already took a hit from traders, realizing the damage and the cost to pay out claims. But going forward, it’s not all good news for these insurers.

In the short term, you will have the companies miss estimates and try to recover lost premiums by raising premiums on insured throughout the country. They will also face the potential of lawsuits that could drag out for years.

All told, the rest of the year will be a volatile one for insurance stocks as they will react to both good and bad news as it relates to Hurricane Harvey.

So What Should Investors Do?

In my opinion, if you aren’t a fan of volatility, then stay away from these stocks. Of course, you could take a contrarian view. Most of the damage is a result of flooding and most homeowner polices don’t include flood coverage. It is a separate insurance you need to purchase.

So insurance companies might not be as bad off. Regardless however, volatility will still be the norm for the short term with these stocks.

Instead focus on the longer term. Houston is the 4th largest city in the United States, so many homes will need to be rebuilt.

This bodes well for Home Depot (NYSE: HD) and Lowes (NYSE: LOW). Additionally, with many cars flooded out, consumers will be in the market for a replacement vehicle. While not all will buy a new car, many will.

And Texas is a place where trucks are king. So shares of General Motors (NYSE: GM) and Ford (NYSE: F), the two big players in the industry could benefit.

Final Thoughts

At the end of the day, investors will want to steer clear from insurance stocks that do business in this region for the short term. Once things settle down, then investors can come back in. Of course, if you are OK with volatility over the short term, then snatching up some of these stocks on the cheap isn’t a bad idea.

But for other investors, looking at the recovery and rebuilding process is where there will be a lot of money. And if you can get in on these stocks now, you should see a nice return on your investment.

This author has no positions in any stock mentioned and does not plan to open any positions in any stocks mentioned for at least 72 hours after publication of this article.