Waylon Wong

For some people, diversification might mean, OK, instead of putting all of our savings into Apple stock, maybe we'll buy some IBM stock or McDonald's stock.

Maybe we'll buy a little piece of every company in the S&P 500.

This is why some people really like catastrophe bonds, because they tend to be so uncorrelated with your other investments.

You know, the profits or losses at Microsoft and McDonald's have very little to do with chances that, say, a typhoon will or won't hit the Philippines next year.

And Ethan says when you put cat bonds side by side with corporate bonds that are similarly risky, some cat bonds will pay you a lot more interest.

When Ethan first got into cat bonds in the 2000s, the market was tiny.

Over the past couple years, they have exploded into an almost $60 billion market, and one that is still growing exponentially.

At the same time, more and more insurance companies are turning to cat bonds to solve one of their big problems right now, which is climate change.

The research says that hurricanes are getting more intense.

Wildfires are becoming more frequent.

In high-risk places like California and Florida, a lot of insurance companies are pulling out.

They're like, this is too much risk for us.

And so investors like Ethan are helping citizens provide insurance to people living in risky areas.

Ethan's firm owns some of those cat bonds from citizens.

The latest ones pay investors between 8 and 13 percent interest.

And he knows that if a big hurricane hits Florida, he's going to lose his investment.

And he kind of likes that part.

After the break, we talked to someone who tried to take the idea one step further.

He thought, what if cat bonds could help people suffering from Ebola?

And we're starting to see more and more unusual types of risk getting packaged and put onto the market, like cat bonds for terrorism risk or cyber attacks.