Allstate has several mechanisms in place by which to govern and manage climate-change risk and to enforce accountability. These include enterprise risk management, executive compensation, procurement policies and governance oversight at the board and cross-functional levels.
We manage our climate risks within our integrated Enterprise Risk and Return Management framework. The ERRM framework leverages risk-return principles, governance, modeling and analytics, and importantly, transparent management dialogue. This framework provides a comprehensive view of risks and opportunities and is used by senior leaders and business managers to provide risk and return insights and drive strategic and business decisions. Allstate’s risk management strategies adapt to changes in business and market environments and seek to optimize returns.
The Enterprise Risk & Return council is Allstate’s senior risk management committee that directs ERRM by establishing risk and return targets, determining economic capital levels and directing integrated strategies and actions from an enterprise perspective. The ERRC consists of Allstate’s chief executive officer, president, business unit presidents, chief investment officers, enterprise and business unit chief risk officers and chief financial officers, general counsel and treasurer. Allstate’s board of directors, risk and return committee and audit committee provide ERRM oversight by reviewing enterprise principles, guidelines and limits for Allstate’s significant risks, and by monitoring strategies and actions management has taken to control these risks. Our risk and return principles define how we operate and guide decision-making around risk and return. These principles are based upon three key operating components: maintaining our strong foundation of stakeholder trust and financial strength, building strategic value and optimizing return per unit of risk.
Further, we design Allstate’s overall executive compensation program to deliver compensation in accordance with performance and not reward excessive risk taking. It includes both short- and long-term incentive components. Monetary incentives for achieving corporate and performance goals include risk and return management, including managing those risks affected by climate.
As a member of the corporate executive team, Allstate’s chief procurement officer incorporates sustainability initiatives into Allstate’s purchasing practices. Accordingly, the CPO has spearheaded a sustainability program within the Sourcing & Procurement Solutions department that will assess the environmental risks and opportunities within Allstate’s supply chain and purchasing operations, including the potential to reduce emissions for Allstate’s purchasing operations. One component of the monetary incentive compensation for the CPO and program development team is based on the successful implementation of this program within the department.
Material risks, including those affected by climate, are regularly identified, measured, managed, monitored and reported to senior management and the board. These risks include catastrophes and severe weather events, auto and property insurance underwriting, business continuity, disaster recovery, and investment concentration and insured exposure concentration. Regulatory changes, customer behavior trends and Allstate’s reputation are also considered.
We consider the greatest areas of potential catastrophe losses due to hurricanes to be major metropolitan centers along the East and Gulf Coasts of the U.S. We have addressed our risk of hurricane loss by actions that 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 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.
To further promote accountability of Allstate’s material topics, including climate change, Allstate formed a sustainability council in 2007 composed of a cross section of senior leaders representing every area of the company. Council members bring their unique perspectives and knowledge of the company’s operations and customers to identify key risks and opportunities related to sustainable business practices. The sustainability council meets three times annually to review existing and emerging environmental and social issues while identifying opportunities and strategies to address these issues, and encouraging and enabling employee engagement with the company’s sustainability strategy. The council is led by Allstate’s senior vice president of Corporate Responsibility.