Alexandra PankratyevaThinking of insurance, some of us start to feel bored. However, the most “boring” investments can also bring great trading opportunities. If you start yawning upon hearing of “life insurance”, “health insurance” or “car insurance”, just remember that they may eventually protect you from significant financial harm. The boring stability they give may be very good for investors purposes.
Today, insurance companies may not only serve as a risk management tool, but also as a revenue-driving asset in your trading portfolio.
Insurance industry outlook 2019
Although 2018 and 2019 were bright years for insurance industry performance, the recent global economic slowdown has caused some fears about a potential full-fledged recession in 2020.
Investors are worried about the ongoing trade tensions between the United States, China and other nations over trade rules and tariffs. In this unstable economic environment, insurers will try to maintain their growth momentum and continue boosting their operational efficiency, improving productivity and lowering costs due to cutting-edge technological transformations.
How to invest in stocks of insurance companies
How does insurance work? To put it simply, insurance companies just spread the risk of any catastrophic event on a big number of customers, selling millions of insurance policies for a particular amount of money to be able to cover the possible damage. Insurance companies are typically big financial institutions, handling billions of dollars of payouts from millions of customers.
From the investor's point of view, insurance shares are often considered less volatile than others. Therefore, they won't be significantly yield-producing, but they will ensure a greater degree of stability in a conservative investment portfolio.
Another good thing is that insurance stocks usually pay rather generous dividends.
The insurance industry also has its own risks. Therefore, before choosing your insurance shares, consider the following tips.
Tips for picking insurance stocks
- Learn more about the insurance industry. Insurance companies in the stock market are greatly affected by regulation. You should pay attention to its fundamental analysis and refer to the recognised statistical rating reviews.
- Diversify your portfolio with different types of insurance shares. The insurance industry is not homogenous. It includes life, property and casualty insurers. The good thing about these stocks is that they can potentially diversify each other, as they are subject to different types of risk.
- Consider investing in smaller insurance companies. The biggest insurance stocks usually tend to move in line with the overall stock market. Therefore, they can’t offer much in terms of portfolio diversification. The best value opportunities can be found in small-and medium-size insurance companies.
Are insurance companies good investments?
Well, investing in insurance stocks may not sound as exciting as trading a unicorn startup that has just IPO’d. Still, it can bring profit for a private investor.
Less volatility and muted attention from fellow traders means there could be more trading opportunities.
The top 4 reasons why you should consider investing in insurance stocks are:
Best insurance stocks to watch for and trade with Capital.com
Insurance stock | Description |
| Commonly known as Zurich, the company is the Switzerland’s largest insurer. |
The global leader in general insurance, operating in over 100 countries. | |
| The UK insurance provider, specialising in cars. |
| Hartford is an insurance and financial services company, operating across the US. |
