Preparing and Protecting America:
How do we mitigate mega-catastrophe risk?

It’s not a matter of insurance; it’s a matter of economic vitality. The fact is that America is not as prepared as it should be, and mega-catastrophes appear to be increasing in frequency and severity.

Why should Americans be concerned?

For most families, the home represents a primary and growing source of equity and the foundation of their long-term financial security. Yet today, one third of Americans live in areas prone to earthquake risk, and more than half live in coastal counties. This is a precarious place to be at a time when seven major hurricanes struck the Gulf and Atlantic coasts in a 15-month span in 2004-05, and resulted in insured losses that ranked among the top 10 catastrophes in Allstate’s history.

Why is Allstate advocating a new system?

Simply put, the current system does not adequately help Americans effectively prepare for and efficiently recover from catastrophes. Insurance premiums rise as carriers try to cover the costs of mega-catastrophes and reinsurance coverage. Some homeowners find it difficult to secure insurance coverage at any price. As a result, too many consumers and businesses lack the comprehensive coverage they need. And when disaster strikes, they have nowhere to turn for immediate support. Taxpayers also suffer when the government spends billions in emergency funds on people and businesses that may never fully recover. We need a new approach that gives consumers the protection and support they need.

What is Allstate's solution?

We initiated ProtectingAmerica.org, a broad coalition that seeks to better prepare and protect Americans from natural disasters. The goal is to improve consumer education, mitigation and the first response capability of police and fire departments. We are also advocating a new risk-sharing mechanism whereby private insurers would continue to provide protection to consumers but there would be a limit to their potential losses. Losses above this amount would be covered by a privately funded government-sponsored catastrophe pool at the state and federal levels. This structure would provide more protection at a lower cost to consumers.

How will this solution benefit Allstate shareholders?

Allstate is reducing its catastrophe exposure to protect its financial strength and generate consistent earnings. In the short-term, this strategy will require us to provide less protection to fewer homeowners. With a new risk-sharing mechanism in place, we can protect more consumers at affordable prices and enable them to benefit from our world-class service and claims expertise. Bringing the Good Hands® Promise to life will enable us to grow profitably and maintain our record of outstanding shareholder returns.

What can consumers do to protect themselves?

Consumers can take advantage of new education programs that will help them prepare for catastrophes before they strike. They can learn how to:

   • Ensure their insurance coverage includes replacement costs
   • Follow their community’s public escape plan in an emergency
   • Develop a simple family communication and response plan
   • Access available resources to speed the recovery process

You can learn more by visiting ProtectingAmerica.org. Equally important, I encourage you, your family and friends to contact your legislators and ask them to join the effort to help protect you and our country from the devastating consequences of natural catastrophes.

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