The general nature of catastrophe insurance is to provide coverage to those people and businesses that are located in geographic locations prone to hurricanes, earthquakes, floods, tornados and other types of unpredictable calamities that can instantly wash away a home or business or even more.
Because insurance is a method of sharing risk/cost, among people or businesses that are exposed to the same perils, it is usually true that an insurance company can collect enough premiums/sell enough policies so that the funds from the insured group are sufficient to address whatever claims befall the insureds in the given group.
When dealing with Catastrophes however, the issues are more complex. The size of the losses both individually and collectively can be staggering. A given insurance company with a concentration of losses in a given catastrophe area, can be overwhelmed by claims. If that insurance company did not purchase catastrophe reinsurance, it is very possible it would have to shut its doors forever.
Individuals and businesses can purchase catastrophe insurance, in certain parts of the US. While in other parts of the country, they need to get this coverage as part of other insurance policies they purchase, such as homeowners insurance. There are some parts of the US where insurance against catastrophes is just not available, and there are places where it is so expensive that it might as well be unavailable.
If your home is in a catastrophe prone area, it is important that the homeowner know what options are available and what they cost. We recommend that you contact your state insurance department and ask them what is available in your local and where you can go for specific advice. Usually in catastrophe prone areas, the state has already dealt with some of these issues and can direct the homeowner or small business to resources that can be helpful.
While catastrophe insurance is getting more and more expensive, it is at the same time becoming more and more important to a broad section of homeowners and businesses around the world. The capital markets have entered the catastrophe risk business providing assistance in managing risk for some very large insurance companies. State governments have stepped in to provide coverage and even the Federal government wrestling with the issue once again.
In the final analysis, the homeowner or small business owner needs to do some investigation on their own to make sure that they have adequately addressed the risks in their local. Please read up about the perils that confront your neighborhood and speak to a professional insurance agent if you have any questions. Do not try to get by with just taking your chances.