Climate change. Clean Energy. Mining. Agriculture. Livestock and Fishing. Insurance? Insurance may not be the first industry that comes to mind when considering climate change, but insurance companies stand to be among the most challenged by its effects in the coming decades. Current analysis predicts that climate change induced extreme weather events could increase insurance losses by 37% within a decade, and if unchecked could bankrupt the industry.  While debate exists as to culpability of climate change in the current number of natural disasters, scientists at NASA predict that rising temperatures will influence the magnitude of future catastrophes.  Allstate Insurance Group, the second largest property casualty insurance company in the United States , is among world’s insurance companies addressing the challenges of climate change that threaten not only its business model, but the health of the world and its economy.
The most noticeable of Allstate’s climate change responses, limiting policies and improving predictive models, are mostly reactionary in nature and do little to change the tides of climate change. For example, since 2011, Allstate has canceled or chosen not to renew insurance policies in several Gulf Coast states. It reduced homeowner policies in Florida from 1.2 million to 400,000 and plans to eventually hold less than 100,000.  Allstate and the insurance industry is also improving the predictive abilities of its catastrophic weather models.  Allstate’s attempts to better identify high risk areas and limit its exposure to them will likely lead to higher policy premiums or areas with no policies at all. A long-term effect of Allstate’s actions could be the adjustment of consumer behavior – homeowners will eventually become financially incentivized to purchase homes in lower risk areas. But this is likely not the current goal of Allstate’s efforts.
ClimateWise, a global partner within the insurance industry, leads and promotes climate change research and innovation.  As part of its efforts to proactively influence climate change via its 38 insurance company members, ClimateWise published six guiding principles in 2006 (See Figure 1). Although Allstate has led the U.S. insurance industry by cutting its carbon footprint  and currently demonstrates adequate commitments to principles 1, 5, and 6 (See http://corporateresponsibility.allstate.com/environment/climate-change for more information), it should implement strategies aligned with all six of the ClimateWise Principles.
Figure 1. ClimateWise Principles 
Principle 2: “Inform Public Policy Making”
Discussion: Allstate currently supports the Insurance Institute for Business & Home Safety (IBHS) which researches and promotes building practices and codes that protect homes and businesses against losses caused by natural disasters.
Recommendation: Allstate should join ClimateWise and support lobbies at the federal, state, and city levels that limit the development of land in areas most at risk of natural catastrophes. Additionally, Allstate should not rebuild homes in high risk areas after they are destroyed by natural disasters. For example, following Hurricane Sandy in which damage exceeded $126 billion , government flood insurance programs found it more cost effective to relocate frequently flooded areas and return the areas to nature.  Such actions will limit the future economic impacts to insurance companies and protect their customers from increasing natural disasters.
Principle 3: “Support Climate Awareness Amongst Our Customers”
Discussion: Allstate provides customers with its Homeowners Policy Green Improvement Reimbursement Endorsement. This program provides a discount to customers that must replace damaged appliances if they choose energy-efficient models. 
Recommendation: Allstate should incentivize the behaviors of its policy holders beyond property replacement. They should offer discounted premiums to homes with sustainable energy products (solar, wind, etc), to electric cars, to clean energy companies, and to LEAD certified buildings. Such policy discounts will provide added incentive for consumers to adopt these climate friendly options.
Principle 4: “Incorporate Climate Change into our Investment Strategies”
Discussion: Allstate’s investments include a renewable energy portfolio of $230 million and a socially responsible investment portfolio of $51 million which represents less than 1% of its holdings.  
Recommendation: Allstate should expand its investment in renewable energy and climate friendly companies. Additionally, when diversifying its portfolio, Allstate should account for the market risks associated with climate change on various industries.
Despite current efforts, Allstate and the insurance industry at large will continue to encounter significant losses caused by climate change induced natural disasters if additional steps are not taken to hedge risk while adopting and influencing responsible behavior beyond the insurance industry. By adopting the ClimateWise Principles and deepening its commitments to them, Allstate will be positioned to lead change in the U.S. insurance industry.
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