What is the function of the catastrophic risk protection (CAT) insurance?

Catastrophic risk protection (CAT) insurance is designed to provide minimal insurance coverage specifically for area losses that exceed a certain threshold. It is primarily aimed at assisting farmers who face significant losses due to natural disasters, adverse weather conditions, or other catastrophic events impacting crop production. The coverage offered by CAT is intentionally limited to reduce costs for farmers, making it an accessible option for those who might not be able to afford more comprehensive insurance plans.

This type of insurance generally covers a percentage of the average expected yield, thereby helping to safeguard growers against severe losses. It is crucial to remember that CAT insurance is not designed to cover all economic losses nor provide comprehensive coverage for crops. Instead, its focus is on providing a safety net for farmers when their crop yields fall below a certain level due to widespread losses in the area.