Not only do natural disasters affect physical assets they also impact us in many other ways financially. From a financial standpoint the effects are felt in the form of increased insurance premiums, higher commodity prices and potential increases/decreases in stock prices.
- Higher Premiums: From an insurance standpoint, premiums are paid so that when an unfortunate event occurs, the insurance company is there to help. The increase in premiums is a result of the reinsurer increasing the cost to the insurer which then passes on that increase to the consumer.
- Higher Prices: We have all seen or heard about cases of water in the store going for multiples of their normal prices, but the common thread remains supply and demand. Higher prices can be felt many miles away if the region that is affected is a big producer of a certain commodity. For example, 15% or more of the U.S.’s domestic oil refineries are located in the area that was just hard hit by Hurricane Harvey. By taking capacity off line it reduces the overall supply but demand remains unchanged and when this happens prices tend to increase.
- Stock Prices: Stock prices typically fluctuate based on their exposure to the area affected. The most notable sector that is affected are insurance companies as they could be on the hook for the losses.
This will be something to monitor as the full extent of the damage is still indiscernible. Our thoughts are with those along the Texas coast.
