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Planet Money
Planet Money

How hurricanes became a hot investment

December 05, 2025 • 30m

Summary

⏱️ 8 min read

Overview

Planet Money explores the world of catastrophe bonds - innovative financial instruments that allow countries and insurance companies to transfer disaster risk to investors. The episode follows Jamaica's experience with cat bonds through Hurricane Melissa, traces the history of how computer modeling revolutionized disaster insurance, and examines how this market has grown to nearly $60 billion as climate change intensifies natural disaster risks.

Hurricane Melissa Devastates Jamaica

Hurricane Melissa, a Category 5 storm with 185 mph winds, struck Jamaica as the worst hurricane in the country's history. Finance Minister Fayval Williams visited the devastated west coast, witnessing complete destruction of homes and communities. This catastrophe would test Jamaica's innovative financial preparation - specifically, a bet the country had made on hurricanes through an unusual financial instrument called a catastrophe bond.

  • Hurricane Melissa was a Category 5 hurricane with 185 mph winds, the worst in Jamaica's history
  • Finance Minister Fayval Williams witnessed complete destruction, with homes entirely gone and residents wondering what's next
  • Jamaica had been preparing financially for exactly this type of catastrophe through special financial instruments
" There was a lady and she says, come with me, let me show you. This is where my house used to be. And you go, where? It's like right here. There was nothing in the space. It was all gone. "
" We are in the belt, the hurricane belt. There isn't much we can do to change that. But what we can do is to take the steps to ensure that we have access to financing. "

Karen Clark Revolutionizes Catastrophe Modeling

Karen Clark, a computer stats pioneer, transformed the insurance industry by using computer models to predict hurricane damage with unprecedented accuracy. In the 1980s, when the industry relied on guesswork and rule of thumb, she built simulations to calculate catastrophe risks. Her breakthrough moment came in 1992 when Hurricane Andrew proved her $13 billion damage prediction correct, while the entire industry had scoffed at numbers above $7 billion.

  • Karen Clark started applying computer modeling to hurricane risk assessment in 1987, when the industry operated mostly on guesswork
  • She flew to Lloyd's of London seven months pregnant, lugging a 35-pound portable computer to present her models to 100 skeptical British men
  • Hurricane Andrew in 1992 caused $15 billion in damage, vindicating Karen's $13 billion prediction when everyone else said maximum $7 billion
  • After Hurricane Andrew, Karen's company experienced a surge in signups as the industry became believers in computer modeling
" I was a woman coming in, an American woman, and I was seven months pregnant at the time. Yes. And so I waddled in pulling this computer and started showing them how they were going to do better by using this little computer model. "
" The phone started ringing. No one believed it. And again, we're, this is British, they're like, I'll bet you five quid. It won't be more than $5 billion. "

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