What is 'Catastrophe Insurance'

Catastrophe insurance is Insurance to protect businesses and residences against natural disasters such as earthquakes, floods and hurricanes, and against man-made disasters such as terrorist attacks. These low-probability, high-cost events are generally excluded from standard hazard insurance policies, and so catastrophe insurance is required.

BREAKING DOWN 'Catastrophe Insurance'

Catastrophe insurance is different from other types of insurance in that it is difficult to estimate the total potential cost of an insured loss and a catastrophic event results in an extremely large number of claims being filed at the same time. This makes it difficult for catastrophe insurance issuers to effectively manage risk. Reinsurance and retrocession are used along with catastrophe insurance to manage catastrophe risk.

RELATED TERMS
  1. Catastrophe Loss Index - CLI

    An index used in the insurance industry to quantify the magnitude ...
  2. Catastrophe Reinsurance

    Reinsurance purchased by an insurance company that reduces the ...
  3. Catastrophe Futures

    Catastrophe futures are futures contracts traded on the Chicago ...
  4. Insurance Derivative

    A financial instrument that derives its value from an underlying ...
  5. Catastrophic Illness Insurance

    A type of insurance that protects the insured, in the event of ...
  6. Catastrophe Call

    A call provision in municipal bonds that allows for the early ...
Related Articles
  1. Investing

    Elements of Insurable Risks: A Quick Guide

    Explore the elements of insurable risk: due to chance, measurable and definite, predictability, noncatastrophic, random selection and large loss exposure.
  2. Insurance

    How Catastrophic Health Insurance Works

    Catastrophic health insurance is open to people under 30 and those who qualify by income under the Affordable Care Act. But how exactly does it work?
  3. Insurance

    Homeowners Insurance Losers: States That Pay Most

    Which states charge you the most for homeowner's insurance? Hint: They're regularly featured on the Weather Channel.
  4. Insurance

    6 Huge Insurance Claims

    Next time you think that insurance is a waste of your money, think about these expensive claims.
  5. Insurance

    Insurance, Excess Insurance and Reinsurance: What's the Difference? (ALL)

    Understanding the differences might help you avoid being overinsured or underinsured.
  6. Tech

    How Big Data Has Changed Insurance

    No longer confined to technology, big data has become integral to providing solutions to the insurance industry's long standing challenges.
  7. Insurance

    The History Of Insurance In America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
  8. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  9. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
RELATED FAQS
  1. Why do insurance policies have deductibles?

    Learn the basic concept of an insurance deductible and why they mitigate moral hazards and provide financial viability to ... Read Answer >>
  2. What is Warren Buffett's relation to "Supercat" insurance?

    Understand the concept of catastrophe reinsurance and learn how Berkshire Hathaway makes billions providing such insurance ... Read Answer >>
  3. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  4. Why do growth investors buy insurance stocks?

    Discover why growth investors buy insurance stocks; these stocks are tied to major secular trends such as rising costs and ... Read Answer >>
Hot Definitions
  1. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  2. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
  3. Tax Refund

    A tax refund is a refund on taxes paid to an individual or household when the actual tax liability is less than the amount ...
  4. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  5. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  6. Merchandising

    Merchandising is any act of promoting goods or services for retail sale, including marketing strategies, display design and ...
Trading Center