Question

Why caterpillars should not be collected with bare hands?

Answer 1

Caterpillars are cold blooded organisms. If we touch them with bare hands, the heat transferred to their body can be fatal for them.
Also, caterpillars have thick stingy hair , which causes irritation to the are in contact, in some cases these hairs can be poisonous too. Sometimes, the body fluid of some caterpillars too is poisonous .

Answer 2

 Best Answer:  Some caterpillars have hairs which can cause irritation to the skin and respiratory system of humans and animals - it's a defence mechanism. The scientific name for this is "urticating" hairs.

One particularly irritating caterpillar (or rather its hairs) is the caterpillar of the Pine Processionary moth - the hairs can be fatal if inhaled by pets, and can cause a serious allergic reaction in certain vulnerable people. Here is a good link to an article about the caterpillar of the Saddleback moth, another species with urticating hairs