Climate change threatens businesses and communities. A changing climate means we must identify risks and opportunities, which can be either physical, such as extreme weather patterns, or related to transitions such as policy shifts and the development of new technology. Allstate works to understand how this directly and indirectly affects our products, assets, and liabilities.
Allstate’s business viability depends on effectively modeling, pricing, and managing climate-related risks, as well as meeting the needs that result from a changing climate and a changing society. We are developing products and services that address climate change and the transition to a lower-carbon future. Our senior management and the Allstate Board of Directors identify, measure, manage and monitor material risks, including those presented by climate change, such as severe weather and increased natural catastrophes. Our Board of Directors regularly hears from Allstate’s chief risk officer about climate change risks.
Identifying and managing climate risks
We manage climate risks within our integrated Enterprise Risk and Return Management (ERRM) Program, which applies risk-return principles, modeling and analytics, governance, and transparent management dialogue to understand the company’s highest-priority risks. Allstate’s ERRM framework supports transparency and dialogue across the enterprise.
The ERRM Program’s key components enable management and Board oversight of climate risk:
- Risk identification
- Risk assessments
- Risk mitigation
- Risk monitoring and reporting
Our ERRM framework is built on three core principles:
- maintaining a strong foundation and capital position
- building strategic value through time
- optimizing risk and return across the enterprise
The Enterprise Risk and Return Council evaluates climate change risk in coordination with the ESG Steering Committee. We evaluate climate risk across six key categories: strategic, insurance, financial, investment, operational and cultural risk. Here’s how climate change affects them:
- Strategic risk: Evolving property construction trends and the changing transportation system create risks and opportunities for Allstate’s business. We expect that the impacts from climate change will continue to be concentrated in property insurance.
- Insurance risk: Severe weather and rising precipitation levels impact loss trends for auto and homeowners insurance, and increase the overall market size for homeowners' insurance.
- Financial risk: Liquidity and capital levels must be considered relative to catastrophe losses, and anticipated changes in financial disclosure requirements have the potential to increase financial reporting risk.
- Investment risk: Read more about how Allstate is addressing climate-related risk in our investment portfolio in the Responsible investing section.
- Operational risk: Climate-related operational considerations include-regulatory compliance, model accuracy and business continuity.
- Culture risk: Our company and employees are establishing higher standards for acting in the best interest of society, which includes climate considerations.
We apply our risk-return principles directly to climate risks, such as emerging changes to the transportation system and property construction, increasing frequency and severity of losses due to extreme weather and catastrophes, losses on investments, and regulatory compliance.
We are enhancing our risk scenarios to ensure implications are identified. We look at how changing weather patterns may impact our personal and small commercial property portfolios and then partner with our investments risk team to understand how similar factors would affect commercial real estate holdings.
Allstate continuously evaluates products to ensure our prices adequately reflect risks, including climate change. We believe our management practices give us a strategic advantage in the marketplace.
To be as responsive as possible to changing conditions, we monitor state-specific risks and scientific consensus on climate change impacts, as well as competitor trends, including pricing methods. We continually evaluate our pricing methodology to identify better ways to estimate future loss.
Allstate’s executive compensation program is based on short- and long-term incentive components and does not reward excessive risk-taking. Monetary incentives for achieving corporate and performance goals incorporate risk and return management, including managing risks affected by climate.
Allstate’s chief procurement officer (CPO) incorporates sustainability initiatives into Allstate’s purchasing practices. Our CPO implemented a sustainability program as part of Sourcing & Procurement Solutions to assess the environmental risks and opportunities within Allstate’s supply chain and purchasing operations enterprise wide, including the potential to reduce greenhouse gas emissions. Additionally, in 2020, Allstate requested the disclosure of environmental data from companies’ supply chains be reported through CDP Supply Chain. In 2021, we received emissions data from 147 suppliers, for a 90% response rate. Estimated annual CO2 savings was $75.02 million and annual monetary savings from emissions reductions was $13.90 billion. 61% of responding suppliers reported active climate targets.
Allstate’s executive compensation does not include components explicitly linked to performance on climate-related metrics, although the performance of this sustainability program is one component of the incentive compensation for the CPO and program development team.
Policies and practices
Climate change modeling
Allstate’s Catastrophe Modeling and Analytics team and pricing groups assess climate change information and update product leadership. The team uses information from the Intergovernmental Panel on Climate Change (IPCC), the U.S. Global Change Research Program (USGCRP) and the Actuaries Climate Index (ACI). The IPCC and USGCRP evaluate research by climate scientists around the world and conduct robust reviews to provide decision makers with balanced information. The ACI provides an objective measure of extreme weather and sea level rise over time through quarterly updates.
To help inform Allstate’s approach to increased insurance risk, we also use AIR, a hurricane modeling software that looks at data from years with above average sea surface temperatures and the resulting landfalls of hurricanes.
Allstate’s rate-making evaluations typically rely on a 20- to 25-year historical retrospective view and project one to three years into the future, depending on whether the product is auto- or property-based. This practice aligns with Allstate’s three-year strategic planning cycle. Our analysis focuses on predicting business continuity, resiliency, and solvency through a variety of catastrophe scenarios. The Catastrophe Modeling and Analytics team also works with our Investments group to model mortgage and real estate portfolios under consideration for purchase.
Physical climate risk adaptation
Allstate’s ERRM Framework and Economic Capital Framework together ensure that Allstate continually monitors and assesses the broad impacts of climate change on Allstate’s businesses and operations and supports adaptability. Allstate adapts to changes in weather and helps develop solutions for uninsurable risk. We use reinsurance and third-party products to continue providing protection to customers. Allstate ensures that it holds sufficient capital to remain viable as a business and weather extreme scenarios beyond the 1-100 probability level. Allstate creates and analyzes scenarios to explore events that may not be well represented in historical data, including Extremely Low Frequency Scenarios (ELFS). Scenarios vary widely, and include combinations of economic turbulence, financial market stress, pandemics, severe weather, and catastrophe events.
To better predict the level of risk at properties, we are using geocoding, which integrates precise geographic coordinates. This will move us away from using single ZIP codes to using granular risk-based pricing zones, with an immediate focus on coastal and wildfire states where greater precision has the most impact. It also applies machine learning techniques to increase the predictive power of weather, geographic, demographic, construction and customer segmentation data.
Through aerial imagery, we’re prioritizing and eliminating some physical inspection, cutting expenses and improving customers’ experiences. We incorporate insights from high-resolution aerial photos to enhance underwriting and pricing.
Partnerships to advance resiliency
More frequent and severe weather events have an immediate and traumatic effect on our customers, communities, and economies. We have long-standing partnerships with industry leaders to sponsor research that improves resiliency to weather-related perils, so customers can prevent damage and lower insurance costs.
Allstate is an active member and financial supporter of the Insurance Institute for Business & Home Safety (IBHS). IBHS delivers top-tier science and translates it into actions that prevent avoidable suffering, strengthen our homes and businesses, inform the insurance industry and support thriving communities. To reduce future losses, IBHS analyzes existing standards and identifies improvements. Allstate partners with IBHS to promote more durable homes and buildings through better building practices and stronger codes.
The work led to improved building codes in Florida, the development of impact-resistant shingles and the identification of fire-resistant materials and building codes that mitigate wildfire damage with no increase in overall construction costs.
In 2020, Allstate became a member of the National Association of Mutual Insurance Companies (NAMIC). We partnered with NAMIC to advance climate resiliency efforts, including measures contained in the Bipartisan Infrastructure Law. Allstate also worked with the U.S. Chamber of Commerce on climate risk and resiliency efforts. In 2021, Allstate joined the Business Roundtable, which also prioritized climate risk and resiliency as one of their issues.
The Allstate Foundation partners with agents and local and national nonprofits to prepare communities for disasters by providing emergency kits and other tools. These efforts increase awareness of severe weather-related risks and help people better protect themselves and loved ones.
Advocating for disaster prevention, preparedness and risk response
Climate change will make natural catastrophes more frequent and severe. We partner with national and local organizations to prepare and protect communities from the adverse impacts of climate change. At the state level, we have successfully advocated for changes that address climate change by strengthening building codes, expanding emergency response capabilities, and creating catastrophe insurance pools.
Allstate’s top public policy priorities are:
Climate and Catastrophe Resiliency: Allstate is fighting for more resiliency for property owners facing catastrophic events such as wildfires, floods, and hurricanes. We want improved flood controls and stronger building codes and we are considering how to use data from catastrophic events to mitigate some of the damage caused. We support additional federal resources for climate change mitigation, including for programs like FEMA’s Building Resilient Infrastructure and Communities (BRIC), which offers grants for mitigation and related activities. Given the challenges with efficiently assessing mitigation, particularly for wildfires, we are advocating for state and local programs to promote and assess mitigation and increased federal support of such programs. Allstate is also a champion for pooled solutions to protect consumers in high-risk areas, such as establishing a Florida-style catastrophe fund to help stabilize California’s homeowners’ market, along with other reforms and mitigation funding.
We plan to expand our work related to Allstate’s public policy priority of climate resilience and we look forward to reporting on this more in the future. You can learn more about our partnerships with other stakeholders, like local, state, and federal government, in the Public Policy section.
Corporate Tax Rate: Allstate's tax position and strategies are built on values of compliance and transparency globally.
Right to Repair: Allstate opposes restrictions limiting the ability of independent repair facilities to repair cars that reduce consumer choice and increase repair costs.
Risk-Based Pricing: Allstate endeavors to engage policymakers on collaborative solutions. This work has elements that are aligned with our inclusive diversity values and our commitment to innovation.
Road Safety: Allstate supports federal funding to make our roads and bridges safer and implementing the Bipartisan Infrastructure Law’s safe driving provisions.
As the climate emergency grows, the world needs to transition to a low-carbon economy. Our role is to reduce emissions by setting realistic and meaningful decarbonization commitments. Allstate has been disclosing Scope 1 and 2 emissions for our CDP submission since 2007. We performed an initial Scope 3 review of financed emissions covering the investment portfolio and are enhancing our baseline inventory while working towards science-aligned targets. We will report on this more in the future.
Allstate plans to expand the Task Force on Climate-Related Financial Disclosures (TCFD) report to reflect the work done on measuring both operational emissions and financed emissions. We are developing a financed emissions inventory and heat map that help identify the impact of our portfolio on climate change and facilitate emissions reductions. We will report on this more in the future.
Programs and performance
In addition to managing risk from the changing environment broadly, we are reducing our contributions to the climate crisis.
We have cut energy use beyond our original targets and significantly reduced our greenhouse gas emissions. Allstate intends to adopt science-aligned targets and we are committed to ongoing reporting of our emissions through CDP.
Allstate is a member of the CDP “B List” for climate change.
In 2021, we engaged CDP Supply Chain to measure and manage suppliers’ environmental impact and asked our key suppliers to set emissions reduction targets and submit/disclose data to CDP. We conduct an annual Supplier Sustainability Assessment to help suppliers manage their contributions to climate change and to align suppliers with Allstate’s values and approach. In 2021, 147 of our most strategic suppliers disclosed their environmental data via the CDP Climate Change questionnaire, an increase from 2020.
As of year-end 2021, we converted 50% of our automobile fleet to hybrid vehicles. To further reduce our carbon footprint, we hope to transition to 100% hybrid vehicles by 2025.
In 2021, Allstate published a TCFD report and is working toward science-aligned targets. We will also continue to apply emerging data science to risk assessment, including exploring partnerships with startups that specialize in forward-looking climate modeling.
- Reduce owned and leased building GHG emissions 50% from a 2019 baseline by 2024
- Transition to 100% hybrid vehicles by 2025
- Achieve green or healthy building certification for 100% of newly acquired buildings, beginning in 2023
- Transition power used at 40% of facilities where Allstate procures energy purchases to 100% renewable energy through renewable energy credits (RECs) and carbon offsets by 2030
- Discourage excess waste and encourage recycling through centralized waste collection at all locations by 2023