What is a Catastrophe?

Answer:
The word “catastrophe” has numerous meanings

and nuances. For example, Merriam Webster’s Collegiate Dictionary lists several meanings including: the final event of a dramatic action especially a tragedy; a violent and destructive natural event; and utter failure.

The insurance industry uses the term to describe a sudden, great disaster that causes substantial, extended damage involving large areas. In addition, the industry considers an event that causes insured property losses of over $5 million which affect numerous policyholders and insurance companies. Catastrophes often cause injuries and death and result in significant property damage.

For example, Hurricane Katrina was a catastrophe. Other examples of insurance catastrophes include earthquakes, tornados, typhoons, floods, and wildfires. An example of a natural disaster that doesn’t meet the insurance definition of catastrophe would be a strong earthquake in the middle of the desert that causes no damage because nothing is there to be destroyed.

If your home burns down because it was ignited by a smoldering cigarette someone carelessly left behind, it will feel like a catastrophe to you however it doesn’t fit the insurance company’s definition of widespread ruin. On the other hand, a wildfire that burns down 3000 homes in a single community is considered an insurance catastrophe.


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