Catastrophe Loss Index (CLI): Definition & Meaning

KEY TAKEAWAYS

• The CLI is used to estimate the number of insured losses resulting from natural disasters, so the appropriate amount of resources is reserved for these events.
• The CLI is helpful in ensuring that a company doesn’t create too many policies in a disaster-prone area to avoid high catastrophic loss risks.

What Is the Catastrophe Loss Index CLI?

The Catastrophe Loss Index – CLI is an index used by the insurance industry to help predict the magnitude of insurance claims that may arise from major disasters. This index assigns a number that covers the expected insured losses stemming from housing, car, and commercial property insurance policies.

The purpose behind the CLI is to provide insurance insights that inform issuers of insurance on how much money they’ll need to have in reserves to handle a large influx of insurance claims during major disasters. It is also used to determine accurate timing and locations to send insurance adjusters when verifying claims during a catastrophe investigation.

CLI also acts as a basis for catastrophe derivative instruments and catastrophe bonds. Essentially allowing insurance companies to hedge their bets against natural disasters. This includes not making too many policies in an area that is affected by a large number of weather-related disasters.

Summary

Overall, the CLI is a helpful tool for insurance companies in tracking losses, assessing their reserves, making decisions about issuing policies, and informing catastrophe securities.