Insurance companies have insurance companies

I sat next to someone today who sells "reinsurance." You and I, the average person, buy insurance. But sometimes our insurance companies have claims that exceed what they are able or set up to pay out. Enter reinsurance. The insurance companies have insurance policies that cover them in the event of a catastrophe - or "Cat Coverage" for short. If a catastrophe outpaces even the cat coverage, there is a pool of money that all insurance companies in a state pay into and it can be tapped. In New Orleans, however, the insurance companies, reinsurance companies, and the guarantee fund were all maxed out, and not all claims were covered, or covered to the full extent of the losses.

The world of finance gets more and more complicated. Because behind the insurance companies are tons of experts - medical, economic, law, and more - and the investments that are made to help insurance companies grow their asset base to keep up with claims are sometimes in high-risk investments. Exhibit A - AIG. AIG had the highest possible rating for an insurance company, but investments in British financial products went sour and BOOM goes the American economy.

Things are never as simple as they appear.