Apart from NVIDIA lighting up NASDAQ with their optimistic outlook off the back of AI growth and the monthly speeches from the Fed about inflation and jobs another set of new headlines dominate our news feeds. Severe storms affecting Vermont. Hawaii on fire. Just today FEMA has 7 ongoing disaster efforts across the US providing information on affected areas, counseling, donation links, and of course locations and hours of disaster recovery centers that can provide us the information necessary to make money out of it.
Now, it may seem macabre and like taking advantage of people in need but there is no denying that disasters create a market that needs serving. How a company would provide that service would define whether its excessive profiteering or not. As it cannot be denied that natural disaster response is a growing industry not just in the US but globally. Just in 2022, the US experienced 18 natural disasters that caused $175.2 billion in damages which is on par with the US average over the past five years, wherein the US averaged $119.1 Billion in costs since 2018. Irrespective of the type of natural disaster that hits there will always be certain industries that can benefit from this market that opens every time a disaster strikes.
Firstly, the obvious first sector that benefits from natural disasters is the construction and repair sectors. Despite the negative labor impacts of a natural disaster and on the supply chain for materials, construction companies in disaster hit areas tend to have a demand surge of around 20%. Since regardless of the type of natural disaster (except for pandemics of course) the construction and repair sectors are crucial to the recovery plans of the affected area.
The second sector that is front and center during natural disasters is the retail sector. Specifically retail companies that focus on providing access to consumer staples such as Wal-Mart and construction supplies like Lowe’s and Home Depot. These companies are at the forefront of numerous natural disasters as they have continued to evolve over the years to become more efficient in responding to a time of crisis. Wal-Mart itself has invested heavily in weather prediction technology that would aid them in planning out their supply lines as soon as recovery activities after a disaster kicks off. On the construction supply side, Lowe’s and Home Depot have famously incurred losses during the recovery activities to win more loyal customers down the line.
Up third is the insurance sector, as risks of natural disasters are trending higher due to the escalating impact of climate change leading to more frequent and severe catastrophic events, reinsurance companies have significantly elevated the premiums they levy on insurance firms which will eventually impact the policyholders. As insurance operates on the principle of shared risk, individuals collectively bear the outcomes and financial performance of their insurance providers, regardless of whether they are favorable or unfavorable. When an insurance company faces substantial payouts due to natural disasters in a particular region, it can exert an influence on the insurance costs for all policyholders, particularly those residing in states prone to greater potential for catastrophic losses down the line.
The last sector to be put in focus in this article is the Natural Disaster & Emergency Relief industry. This sector has experienced 5.7% growth in 2022 and was estimated to be at a market size of $14.7 billion, however this may be considered a sleeper sector for now as the average growth has of this sector since 2018 was only at 0.3% but recent news of the US economy rebounding coupled with the possibility of increased frequency of natural disasters. Some analysts are quite bullish on the potential of Natural Disaster & Emergency relief and are expecting it to rebound in the coming years.