Advice on roofing and insurance
April 01, 2025
by a searcher from Harvard University in Washington, DC, USA
I'm considering an investment in a roofing company that's business is focused on "storm chasing" (i.e. seeking insurance claims for customers after storms). I'm trying to understand how stable this type of business is. I've heard reports that insurance companies tightening up, but I've also heard others say that concern is overblown. I'd welcome perspective from investors or operators in the space.
from University of Florida in Washington, DC, USA
a.) It's not inherently stable unless you have a large enough area to smooth out the variability in storms. Yes, you can blanket a neighborhood after a hail storm or wind storm with door to door reps, EagleView has really good post-storm imagery sometimes, drones are cool toys, etc. But storms only come when they come, and you won't be the only one hitting the most obvious post-storm areas. I think you would want to have some base of non-storm business to cover at least fixed costs, and storm work can drive upside.
b.) Storm chasers can have a poor reputation in the industry...especially in FL, it's almost used as a derogatory term.
c.) I've seen businesses like this try to sell after a banner year, so there's some valuation risk...there isn't necessarily any sustainable growth if it's all storm work, and your levers for growth are somewhat limited.
d.) I haven't seen insurance companies tightening up, personally, but don't have a ton of data points.
My personal search criteria has generally passed on roofing/siding contractors with a large portion of storm work, but obviously it can work and can be a lucrative opportunity. Just be sure to model some downside risk.
from Massachusetts Institute of Technology in Colorado Springs, CO, USA
The analysis that really revealed the truth was to take the monthly financials and restate them from calendar fiscal year to a fiscal year aligned with the hail season in the area the business was located. Once we looked at it that way, the seasonality revealed itself. I also pulled storm data from NOAA and calculated some correlations to key financial metrics. The correlations were very strong (I think R^2 > 0.9). In bad years, net income was right around zero, sometimes negative.
After the season in which we would have acquired the business I pulled the storm data again and predicted that if we would have purchased the business we wouldn't have made enough money to even cover the debt. I learned a lot from looking at this business. We didn't buy it for multiple reasons, but the financial analysis was a major factor.