{"id":11105,"date":"2016-11-04T07:43:11","date_gmt":"2016-11-04T11:43:11","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/insurance-and-climate-change-will-climate-change-break-allstates-good-hands\/"},"modified":"2016-11-04T07:43:11","modified_gmt":"2016-11-04T11:43:11","slug":"allstate-insurance-group-and-climate-change","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/allstate-insurance-group-and-climate-change\/","title":{"rendered":"Allstate Insurance Group and Climate Change"},"content":{"rendered":"

Climate change.\u00a0 Clean Energy.\u00a0 Mining.\u00a0 Agriculture.\u00a0 Livestock and Fishing.\u00a0 Insurance?\u00a0 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.\u00a0 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. [5]\u00a0 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. [8]\u00a0 Allstate Insurance Group, the second largest property casualty insurance company in the United States [2], is among world\u2019s insurance companies addressing the challenges of climate change that threaten not only its business model, but the health of the world and its economy.<\/p>\n

The most noticeable of Allstate\u2019s climate change responses, limiting policies and improving predictive models, are mostly reactionary in nature and do little to change the tides of climate change.\u00a0 For example, since 2011, Allstate has canceled or chosen not to renew insurance policies in several Gulf Coast states.\u00a0 It reduced homeowner policies in Florida from 1.2 million to 400,000 and plans to eventually hold less than 100,000. [5]\u00a0 Allstate and the insurance industry is also improving the predictive abilities of its catastrophic weather models. [1]\u00a0 \u00a0Allstate\u2019s 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.\u00a0 A long-term effect of Allstate\u2019s actions could be the adjustment of consumer behavior \u2013 homeowners will eventually become financially incentivized to purchase homes in lower risk areas.\u00a0 But this is likely not the current goal of Allstate\u2019s efforts.<\/p>\n

ClimateWise, a global partner within the insurance industry, leads and promotes climate change research and innovation. [6] 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).\u00a0 Although Allstate has led the U.S. insurance industry by cutting its carbon footprint [4] and currently demonstrates adequate commitments to principles 1, 5, and 6 (See http:\/\/corporateresponsibility.allstate.com\/environment\/climate-change<\/a> for more information), it should implement strategies aligned with all six of the ClimateWise Principles.<\/p>\n

\"principles\"<\/a><\/strong><\/p>\n

Figure 1. ClimateWise Principles [6]<\/strong><\/p>\n

 <\/p>\n

Principle 2: \u201cInform Public Policy Making\u201d<\/strong><\/p>\n

Discussion:<\/strong> 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.<\/p>\n

Recommendation:\u00a0 <\/strong>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.\u00a0 Additionally, Allstate should not rebuild homes in high risk areas after they are destroyed by natural disasters.\u00a0 For example, following Hurricane Sandy in which damage exceeded $126 billion [1], government flood insurance programs found it more cost effective to relocate frequently flooded areas and return the areas to nature. [3] Such actions will limit the future economic impacts to insurance companies and protect their customers from increasing natural disasters.<\/p>\n

Principle 3: \u201cSupport Climate Awareness Amongst Our Customers\u201d<\/strong><\/p>\n

Discussion:<\/strong>\u00a0 Allstate provides customers with its Homeowners Policy Green Improvement Reimbursement Endorsement.\u00a0 This program provides a discount to customers that must replace damaged appliances if they choose energy-efficient models. [7]<\/p>\n

Recommendation:<\/strong> Allstate should incentivize the behaviors of its policy holders beyond property replacement.\u00a0 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.\u00a0 Such policy discounts will provide added incentive for consumers to adopt these climate friendly options.<\/p>\n

Principle 4: \u201cIncorporate Climate Change into our Investment Strategies\u201d<\/strong><\/p>\n

Discussion:<\/strong>\u00a0 Allstate\u2019s 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. [7] [2]<\/p>\n

Recommendation:<\/strong> Allstate should expand its investment in renewable energy and climate friendly companies.\u00a0 Additionally, when diversifying its portfolio, Allstate should account for the market risks associated with climate change on various industries.<\/p>\n

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.\u00a0 By adopting the ClimateWise Principles and deepening its commitments to them, Allstate will be positioned to lead change in the U.S. insurance industry.<\/p>\n

 <\/p>\n

Wordcount: 745 without citations<\/p>\n

\n

Citations<\/u>:
\n[1] Toumi, Ralf, \u201cCatastrophe Modeling and Climate Change,\u201d Lloyd\u2019s London ClimateWise Initiative, 2014, http:\/\/www.lloyds.com\/lloyds\/corporate-responsibility\/environment\/climatewise, accessed November 2016.<\/p>\n

[2] Hayes, Adam, \u201cTop 10 Insurance Companies By The Metrics,\u201d Investopedia, November 13, 2014, http:\/\/www.investopedia.com\/articles\/active-trading\/111314\/top-10-insurance-companies-metrics.asp, accessed November 2016.<\/p>\n

[3] Jiang, Jess, \u201cAfter Hurricane Sandy, Many Chose To Move Rather Than Rebuild,\u201d National Public Radio, August 26, 2016,\u00a0 http:\/\/www.npr.org\/2016\/08\/26\/491531827\/after-hurricane-sandy-many-chose-to-move-rather-than-rebuild, accessed November 2016.<\/p>\n

[4] Donash, Kyle, \u201cCDP Recognizes Allstate as Leader in Climate Change Transparency; Only Property and Casualty Insurer to Make List,\u201d Allstate Newsroom, September 29, 2014, https:\/\/www.allstatenewsroom.com\/news\/cdp-recognizes-allstate-as-leader-in-climate-change-transparency-only-property-and-casualty-insurer-to-make-list\/, accessed November 2016.<\/p>\n

[5] Mills, Evan, \u201cResponding to Climate Change,\u201d Lawrence Berkley National Laboratory, http:\/\/evanmills.lbl.gov\/pubs\/pdf\/climate-action-insurance.pdf, accessed November 2016.<\/p>\n

[6] Cambridge Institute for Sustainability Leadership, \u201cThe ClimateWise Principles,\u201d http:\/\/www.cisl.cam.ac.uk\/business-action\/sustainable-finance\/climatewise\/principles, accessed November 2016.<\/p>\n

[7] Allstate Insurance Company, \u201cCorporate Responsibility,\u201d http:\/\/corporateresponsibility.allstate.com\/environment\/climate-change, accessed November 2016.<\/p>\n

[8] NASA, \u201cThe Impact of Climate Change on Natural Disasters,\u201d The Earth Observatory, http:\/\/earthobservatory.nasa.gov\/Features\/RisingCost\/rising_cost5.php, accessed November 2016.<\/p>\n","protected":false},"excerpt":{"rendered":"

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