Okay, by itself many of you who read this article probably do not care. After all, most of my readers are in California, and even those in Ohio should know that there is twice as much premium for small aircraft than for earthquake exposures. So, Allstate pulling out is not a huge deal.
But, and you knew there had to be a but, this part of the story kills me. Allstate’s spokeswoman said “The current insurance model is not well-suited for handling losses from low-frequency, high-severity, mega-catastrophic events.” Huh?
Let me explain in English. Low frequency means you do not see a lot of claims. High severity means each claim is expensive. So, she is saying that insurance is not suited for handling something that does not happen very often, but is expensive when it happens. Isn’t that what insurance is for?
After all, if you have high frequency and low severity, they cancel you, right? So, you are in a position where Allstate will cancel you for filing a lot of claims but they cannot handle the rare, but expensive claim? This makes absolutley no sense. Just more double-talk from the insurance companies.