The insurance industry and its business model are lucrative, glacial in size and gushing billions of dollars in free cash flow. It's a business model that Warren Buffett and his famous holding company love. That's why they've invested in the property and casualty business ( GEICO) and the reinsurance side of the business.
If you have the chance, see the documentary "Chasing Ice". It's a brilliantly photographed and scientifically verifiable movie that suggests one of the big reasons the insurance industry will someday face more challenges and costs than it does today.
For the time being insurance companies will continue to increase their cash reserves. They'll invest a good part of that money into stock buybacks, dividend increases and acquisitions. That will keep it one of the most sought-after sectors by investors.
There are a number of exchange-traded funds that specialize in that sector, giving investors exposure to a basket of many of the top insurance companies. They include the iShares Dow Jones US Insurance ETF (IAK) and the Powershares Dynamic Insurance ETF (PIC).At the time of publication, the author held no positions in any of the shares mentioned.
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