Our business success depends on effectively modeling, pricing and managing climate-related risks, and developing products and services to address climate change. Our senior management and the Allstate Board of Directors identify, measure, manage and monitor material risks, including climate change.
We manage climate risks within our integrated Enterprise Risk and Return Management (ERRM) framework, which applies risk-return principles, modeling and analytics, governance, and transparent management dialogue to understand the company’s highest-priority risks. Risk is evaluated across six key areas: insurance, investments, financial, operational, culture and strategic execution. Climate change risks are a component of several of these areas, including catastrophes and severe weather events, auto and property insurance underwriting, business continuity, disaster recovery, investment concentration and insured exposure concentration. Regulatory changes, customer behavior trends and Allstate’s reputation are also considered.
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.
As a member of the corporate executive team, Allstate’s chief procurement officer (CPO) incorporates sustainability initiatives into Allstate’s purchasing practices. Our CPO implemented a sustainability program within Sourcing & Procurement Solutions to assess the environmental risks and opportunities within Allstate’s supply chain and purchasing operations, including the potential to reduce greenhouse gas emissions. The performance of this program is one component of the incentive compensation for the CPO and program development team.
Major metropolitan centers along the East and Gulf coasts of the United States represent the greatest potential catastrophe losses from hurricanes. Actions to address our risk of hurricane loss include:
- Purchasing reinsurance for specific states and countrywide for our personal lines auto and property insurance in areas most exposed to hurricanes.
- Limiting personal homeowners insurance new business writings in coastal areas in the Southern and Eastern states.
- Implementing tropical cyclone and/or wind and hail deductibles or exclusions, using facultative reinsurance where appropriate and continuing to not insure flood risk.
Policies and Procedures
A changing climate means we must identify risks and opportunities associated with extreme weather patterns, policy shifts and new technology. As part of this effort, Allstate works to understand climate risks that directly affect our insurance products and assets.
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 balanced information to decision-makers. The ACI provides an objective measure of extreme weather and sea level rise over time through quarterly updates.
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 partners with our Investments group to model mortgage and real estate portfolios under consideration for purchase.
Programs and Performance
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 to changing conditions as possible, we monitor state-specific risks and scientific consensus on climate change impacts, as well as competitor trends and competitor pricing methods. We also continually evaluate our pricing methodology to identify better ways to estimate future expected loss.
Allstate uses our industry expertise to formulate public policy solutions to address weather-related risks and reduce their impact. We understand that climate change will likely increase the frequency and severity of natural catastrophes. We partner with national and local organizations to prepare and protect communities from the adverse impacts of climate change. We have successfully advocated at the state level for addressing the impacts of climate change by strengthening building codes, expanding emergency response capabilities and creating catastrophe insurance pools.
Every year, severe weather highlights the weaknesses in our building codes and products, and the standards used to rate those products. By working to increase resiliency, Allstate saves lives and reduces the cost of severe weather and natural disasters. For example, Allstate remains 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 ways to improve them. The resulting research and insights will influence building codes and standards, which will lead to better products and stronger buildings. IBHS research also provides critical data to improve existing modeling methods and outputs and reduce fraud. Allstate partners with IBHS to promote more durable homes and commercial buildings through better building practices and stronger codes.
Additionally, The Allstate Foundation partners with agency owners and local and national nonprofits to prepare communities for disasters by providing emergency kits and other tools. At Allstate, we believe collaborative efforts like these increase awareness of severe weather-related risks and help people better protect themselves and loved ones.