Detailed Information on Allstate's Approach to Managing Climate Change

Risk & Climate Performance
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Climate change affects the way Allstate does business and how we serve our customers. Because changing weather patterns can cause more frequent or more severe weather events, Allstate has a significant interest in helping mitigate the effects of severe weather on our customers and our company. To learn more on Allstate’s approach to managing climate change, see our Climate Change Statement.

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Allstate understands increased severity and frequency of weather events and natural catastrophes affects the cost and frequency of our customers’ claims arising from droughts, flooding, hurricanes, forest fires, wildfires and rising sea levels. Increasing frequency of catastrophic events and associated rate increases can also impact the Allstate customer experience.

Our success depends, in part, on our ability to properly model, price and underwrite climate-related risks and develop climate-mitigating products and services. A changing climate also means we must identify risks and opportunities associated with changes in climate policy, technology and physical risks.1

Allstate seeks to maintain an understanding of climate risks that directly affect both our insurance products and our assets, and we modify products and protect assets accordingly to protect our shareholders, customers and reputation. Allstate’s Catastrophe Modeling Team and Pricing Groups monitor climate change information throughout the year and provide updates to Product Leadership. The latest update, May 2017, focused on the “Latest Understanding of Climate Change and the Potential Impact on Allstate’s Property / Casualty Insurance Operations.” The information contained in the update was gleaned from three sources: the IPCC—International Panel on Climate Change, the USGCRP—U.S. Global Change Research Program, and the Actuaries Climate Index committee. The IPCC and USGCRP monitor and evaluate the research efforts and call out where they see alignment and higher confidence in findings. The Actuaries Climate Index provides an objective measure of extreme weather and sea levels over time and is updated on a quarterly basis.

1 Intergovernmental Panel on Climate Change, Climate Change 2013: Physical Science Basis (Cambridge: Cambridge University Press), 126.

Governance

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.

 

Principles

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.

Responsible Investment

Responsible Investment ($ Millions)

Our primary responsibility in managing our investment portfolio is to generate competitive returns while keeping risk to appropriate levels and considering the social and environmental consequences of our investments.

The company’s investment portfolio includes support of environmentally friendly and socially responsible investment opportunities with attractive risk and reward trade-offs. The portfolio includes debt investments in wind, hydro, solar and geothermal projects. In 2016, our investments included a low-income-housing tax credit portfolio of $441 million, a socially responsible investment portfolio of $56 million and a renewable energy portfolio of $228 million.

Furthering our knowledge and commitment to these areas, Allstate maintains a partnership with Ceres, a leading nonprofit organization that advocates for global sustainability leadership.

 

Operations

One of the most effective ways we can demonstrate our commitment to sustainability is to “walk the talk” by demonstrating our own operational commitment to limit or reduce our environmental impact. In 2016, Newsweek magazine named Allstate one of the United States’ Greenest Companies (No. 93) for the seventh time. Allstate believes its sustainability initiatives are intrinsically tied to its corporate citizenship and help strengthen employee and customer pride.

We consider ways to adopt key environmental priorities into all business functions and departments, and develop goals and corresponding Key Performance Indicators. As an example, in order to mitigate Allstate’s operational contributions to climate change, the sustainability council established an absolute emissions reduction goal and narrowed our environmental KPIs in two areas: paper consumption and energy usage.

In 2010, we pledged to reduce our absolute energy use 20 percent compared to our 2007 baseline. Allstate surpassed this goal in 2014, six years ahead of schedule. We continue to work toward further reductions by consolidating office space and recapturing heat energy as a byproduct of Allstate’s data center operations. We also optimize the use of energy-efficient equipment and systems—including HVAC equipment and controls, reduced lighting power density designs and daylight harvesting in Allstate’s offices.

Energy Reduction

See our operational performance metrics in our Energy, Emissions and Waste section.

Many of our energy reduction efforts focus on Allstate’s owned building portfolio, including our headquarters located in Northbrook, Illinois, which encompasses approximately 1.9 million square feet of office space.

Allstate is a national member of the U.S. Green Building Council and participates in its Leadership in Energy and Environmental Design program. We have three LEED® accredited professionals on staff.

Each year, Allstate discloses our companywide carbon footprint to stakeholders, including our greenhouse gas emissions and strategy to manage them, via the Carbon Disclosure Project voluntary questionnaire. Allstate also discloses our climate risk strategy and mitigation actions, which includes carbon emissions reduction efforts, through vehicles like the National Association of Insurance Commissioners’ annual Climate Change and Risk Disclosure survey.

Climate Change 2017 Information Request—Allstate Insurance Company.

 

Products and Services

Allstate continuously evaluates and monitors our products to ensure they are priced to adequately reflect risks, including those related to climate change. We believe our risk and return management practices give us a strategic advantage in the marketplace.

To assist our customers in mitigating their household carbon footprint, we provide a product called the Homeowners Policy Green Improvement Reimbursement Endorsement, which allows a customer who purchased this endorsement to replace covered, damaged or destroyed appliances or equipment with more energy-efficient items and be reimbursed the additional cost incurred to replace them.

The additional reimbursement applies to certain categories of Energy Star® products rated as energy-efficient by the Environmental Protection Agency—appliances and equipment such as washers and refrigerators; computers and electronics; heating and cooling equipment, such as air conditioners and fans; and certain plumbing and building products. These products generally save electricity or water, reducing a home’s environmental impact while lowering homeowners’ utility bills. Because of their energy-efficient rating, Energy Star products may help consumers reduce their greenhouse gas emissions associated with their use of home appliances. Allstate offers the Homeowners Policy Green Improvement Reimbursement Endorsement in most states.

 

Public Advocacy

The Allstate Foundation partners with agency owners and their local nonprofits to prepare communities for disasters by providing emergency kits and other tools.

Allstate understands that climate change will likely exacerbate the frequency and severity of natural catastrophes.2 We use our industry expertise to formulate public policy solutions that address weather-related risks and reduce their impact. That’s why we partner with national and local organizations to better prepare and protect communities, strengthen the country’s financial infrastructure to deal with major events, promote better loss prevention and mitigation through stronger building codes and sensible land use policies, and develop programs to strengthen the ability of first responders to help communities recover from catastrophe.

Allstate maintains critical partnerships aimed at building resilient communities. The Allstate Foundation partners with agency owners and their local nonprofits to prepare communities for disasters by providing emergency kits and other foods. These collaborative efforts increase awareness of weather-related risks and help people better protect themselves and loved ones.

Allstate is an active member and financial supporter of the Insurance Institute for Business & Home Safety. The IBHS mission is to conduct objective, scientific research to identify and promote effective actions that strengthen homes, businesses and communities against natural catastrophes and other causes of loss. Allstate partners with IBHS to promote more durable homes and commercial buildings by improving building practices and by strengthening building codes so our communities are more resilient against natural catastrophes. By working to increase resiliency, Allstate saves lives and reduces the cost of severe weather and natural disasters.

2 Intergovernmental Panel on Climate Change, Climate Change 2013: Physical Science Basis (Cambridge: Cambridge University Press), 126.