Glossary

Catastrophe model

Software that simulates thousands of possible hurricanes, quakes, wildfires and storms to estimate the losses an insurer's policies could suffer.

Also called: cat model, catastrophe modeling, hurricane model, wildfire model, natural catastrophe model

A catastrophe model estimates what disasters could cost by simulating a large catalog of possible events. It has four parts. The hazard module gives the frequency and intensity of events at each location. The vulnerability module estimates how much damage a building of a given age, roof and construction takes at that intensity. The exposure module holds the insurer's actual policies, locations and limits. The financial module applies deductibles, limits and reinsurance to produce insured loss. The output includes an average annual loss and the loss at different return periods.

Insurers use the results to set rates, cap how much they write in a coastline or fire zone, and decide how much reinsurance to buy. Verisk, Moody's RMS and Karen Clark & Company are among the vendors. Regulators have their own rules. Florida's Commission on Hurricane Loss Projection Methodology reviews hurricane models used in rate filings. California priced catastrophe risk from historical losses until a 2024 regulation allowed approved models in rate filings, and the first wildfire models cleared state review in 2025.

Models are estimates with wide uncertainty, and a new version can change premiums even when nothing about your house did. The inputs matter: a wrong roof age or missing mitigation can overstate your risk, so check what your insurer has on file. See how catastrophe models shape your premium and California's Sustainable Insurance Strategy.

Last reviewed October 10, 2026

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Related terms

Probable maximum loss A modeled estimate of how big an insurer's loss from a single severe catastrophe could be, stated at a probability such as a 1-in-100-year event. Reinsurance Insurance that an insurance company buys from other companies, which reimburse part of its claim payments, especially after a large disaster. Wildfire risk score A number a modeling vendor assigns to a property to estimate its exposure to wildfire, which insurers use to accept, price or decline coverage. Rating territory A geographic area, often a ZIP code or county, that an insurer prices as a unit because losses from weather, fire and theft differ from place to place. Rate filing The package of proposed prices, rating factors and supporting data that an insurer submits to a state regulator before or when it changes its homeowners rates. Windstorm The peril of damage from high winds, including hurricanes, tornadoes and thunderstorm gusts, which most policies cover, sometimes with a separate deductible.

Related guides

AI in home insurance: the rules on underwriting and claims What rules apply when home insurers use AI and algorithms to underwrite policies and handle claims, including the NAIC model bulletin, and what you can ask. California's home insurance crisis Why California homeowners lost coverage, how the FAIR Plan became a major insurer, and what to do if you are dropped. Facts as of October 2026. California's Sustainable Insurance Strategy What the Sustainable Insurance Strategy changes in California: wildfire models, reinsurance costs in rates, the 85% writing commitment and what you can expect. Catastrophe bonds and home insurance How cat bonds let investors, not just reinsurers, back hurricane and wildfire risk, who sponsors them, and what they change for homeowners and their premiums. How catastrophe models shape your premium Catastrophe models estimate yearly losses from hurricanes, wildfires and storms. How that output reaches your rate, who checks the models and what you can fix. Climate change and home insurance: what's changing How wildfire, storms, flooding and heat, plus more homes in harm's way and costlier repairs, feed into premiums, deductibles and availability.

Related insurers

Mercury Insurance Los Angeles-based, NYSE-listed insurer selling home insurance through independent agents in 10 states; California's No. 3 homeowners group in 2025.