I think I need to define financial contagion. I will keep it as simple as possible.

Financial markets are highly interrelated and complicated—so complicated that it is virtually impossible to understand how different markets interact.

In "normal" times, markets make predictable and expected moves based on anticipated events (like an economic release or earnings report). Even though the market may have large moves off these events (like bonds selling off Friday on a strong payroll report), they are anticipated and understood such moves can happen at that time. 

So, while these moves impact related markets (stocks sold off on Friday's bond selloff), they are understood and not very stressful for overall financial markets. In other words, these events do not "daisy-chain" down throughout financial markets, hence the term "contagion."

However, a completely unexpected event, called a "black swan" on Wall Street, will it impact related markets in unforeseen ways.

The question is, how do these large unexpected events impact investors and related markets? 

So, what do large, unexpected insurance claims, huge uninsured losses, and massive clean-up mean for P&C insurers, CA/LA munis, and other directly related markets? Will significant unexpected moves in these markets force moves and repricing in other indirectly related markets? Does this daisy chain, taking on a life of its own, cause a contagion throughout financial markets? 

No one really knows how these things will play out, and markets have many questions and fears and no immediate answers. As is often said, "markets hate uncertainty."

Everyone fears that such events will "break" something in financial markets, producing giant panicky moves and significant losses. This is why talk of contagion demands so much attention.