system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5: When major natural disasters like Katrina and the recent LA flooding happen, how do insurance companies pay out? How does it all work?

As an outsider watching all this devastation from afar, I'm curious as to what happens next.

How do the companies cover so much damage at once?  Aren't insurance companies regional based and if large scale destruction happens all at once like this, wouldn't they bankrupt?
gpt
The actual answer is reinsurance. Insurers that people insure with directly have their own insurance policies with global companies called reinsurers. 

These policies cost millions of dollars per year and have an excess / deductible in tens of millions of dollars as well. It means when a single event (such as a flood) goes over a set $ figure for an insurer they lodge a claim, meaning their risk is capped at that amount. 

These reinsurers insure insurance companies across the globe so their risk is spread out and manageable. These companies are also the reason for weird exclusions in your policies (they make them them in there) such as terrorism, nuclear war or biological weapons. 

This is the reason why earthquakes in Japan (for example) can make your premiums higher in the US. A good % of your policy premium goes to the reinsurance which is impacted by global markets. 

It seems strange, but it is the only way that small insurance companies can stay in business when a large event happens, ensuring they can meet all their claim obligations.