Purpose, AI and the Future of Insurance at Allstate | Kellogg Leader Series

Good to be here and thank you for the partnership. Like we just in that one we just provide a little fuel and money and you provide all the IP and it's been great.

First, I'm a big believer in purpose as you and I have talked about, both personal purpose and the company purpose. In this case, I've been CEO almost 20 years ago and I was just becoming the CEO and I had been the president and so we're kind of working on what I wanted to work on. And then I said, you know, but I feel like we need some more energy here, like we just need to drive some change in our culture. So we went down to a place in Florida called the Human Performance Institute and their goal was to help give you more energy in your life. That's what they said. And the way they got there was they help you figure out your personal purpose and there's a bunch of steps you go through. And then you address sort of where you're at today and then you figure out what's your plan to get better. And the idea is if you know what your purpose is and you got a plan, you'll have more energy. And it includes everything from your physical energy to relationships. So I took 11 people down there. One was excited, that was me because I had been there. And everybody came back really excited because it was all about them. And they all had their own personal purpose. And I'm thinking, okay, we're getting there. We got a lot more energy so we can drive the kind of change we want. And as we did it, we started to realize like we were just 11. We needed some more people in the boat. So we decided to expand it to a group of our at the time officers who were 200 people. We said well we need them with us. So we took them through it and they got it. And then we said well if we all know our individual purpose what's the company's purpose and we said well we should write that down just like we've written down our own we should build a plan to get there. So that's really launched our shared purpose which is how we do it for the whole organization. And since then it's been really interesting because we then said well we can't just have 211 people in the boat. We got 55,000 employees. We need more people in the boat. And by the way, as part of our employee value proposition, sort of give to get, we've helped over 45,000 people find out their own purpose. So they went through the same program. We do it online because you can't afford to fly everybody to Florida. And so and then as we built out the company's purpose, we've been through a bunch of gyrations there. And I think what we've concluded in the end, Francesca, is that to be a purpose-driven company, you have to really be powered by purpose-driven people. And if your purpose is not really aligned with ours, then go someplace else. That's okay with us. And so it's been quite a journey. It's been a lot of energy, inspiration. We've learned a lot. We made a bunch of mistakes along the way. But yeah, I'm all in on purpose.

I hope so. Thank you. And I know your daughter is also an alumna and your wife so you're a very purple family.

Yeah. So the first is we write it down. And we've now we're now on our I'm going to call it third revision. It hasn't really changed that much, but we've tried to like strip down the words because the first time you do it, like there's a lot of corporate speak in it, you know, everyone's got different opinions. So, the word is like, you know, but now we're like, okay, we've got three values, we've got four behaviors, we have four operating practices and we have four people we take care of. So it's our customers, our shareholders, our employees, and our communities. And so we kind of really started to boil it down. So you have to keep working. And so the other piece is then you talk about it all the time. So every conversation I have, I'm talking about our shared purpose. And you know, people probably get sick of it. Sometimes you get sick of saying it, you know, but you have to do it and keep it in front of people. The other thing we did well which I didn't know when we started. I've learned it over time by having confusion on what is your purpose. So, our purpose is to help empower people with protection so they can achieve their hopes and dreams. That's a pretty big statement. Sounds great. But I could probably sell health insurance. We don't. I could probably sell I don't know, scooters. I don't know that I could sell a bunch of stuff. And so what we've done is built out a series we call it middleware to go from that purpose down to day-to-day activity. And so I call it strategic middleware. So you got the purpose and then it's like well think of middleware. What would be an example? In your iPad there's a keyboard and then there's a processor in there that does zeros and ones. Think of the zeros and ones as day-to-day activity. Think of the keyboard as your brain and your purpose. There's a bunch of software in there that takes those ideas and turns it into zeros and ones and spits back. So what we've done is build out a series of what we call strategic middleware. So we have our purpose, we have our strategy which is to grow property, liability, market share and expand protection. Under that we have transformative growth. Under that we have an employee value proposition. And so you just keep boiling it down with as simple and fewer words as you can. And you create it so that when it comes down to at the end in the zeros and ones we're just having this conversation about employability with our employees. Can't guarantee a job but I can help you make sure you can get another job at the same or better money. That's kind of interesting if I'm an employee as opposed to like you're going to employ me for life. Well, if you follow up our strategic middleware, it says when you get skills from us, we're going to let you download it and put it onto a resume which says it's Allstate verified skills. So, you can go get another job from another person if you want because it came through that middleware. So, I think that's the thing that I find that it took me a while to bumble through that. So I would say to anybody who's trying to do purpose whether it's your own personal purpose or it's a company purpose just build out that middleware so that just keeps down so you can figure out what you're going to do day-to-day.

So we have four behaviors in our shared purpose. One is to collaborate. Of course you'd want to work with other people, right? One is to challenge ideas. Not challenge people but challenge ideas. The third is decision clarity because in a company our size like a lot of times if you have particularly in this virtual world you got to have decision clarity. Like when you're in a meeting, it's easier to get have another meeting if you're in person, but if you're not and you're going, you gotta have this. The fourth is feedback. And feedback is really help me be a better person. Help me be a better leader. So part of our behaviors is we're helping everybody else. And that's we said has to be honest, has to be direct and it has to be independent of hierarchy. So and so you got to be willing to give me feedback so I can be better. And so we think that's important to being part of our employee value proposition rolling it up is we're going to help you have professional success but if you don't get feedback because I hate this like sometime we have a bimodal workforce half the people work for us more than 10 years half less than 10. Over 10 is probably average of 20, below 10 is three. So once you kind of get with our program you stay around. I'm like well the person who's been here 20 years is it fair to them to not have had feedback and so a job comes up and they say, 'Ah, how come I didn't get that job?' And somebody else is like, 'You're not even on the list.' Like what? And that's because they didn't get good feedback along the way. And I feel that's a responsibility of a leader and an organization. So we're big on feedback.

Well it's complicated right both as an institution but as a person. When they start with the person so in my role I you know you feel like you're being sold every day like everybody in some meeting is trying to sell on something. And by the way, I'm a seller. I'm selling them the proposition of Allstate. I'm selling our customers. So, it's all marketing. So, you feel like you're that person in New York, you know, where they've got the three cups and you're trying to find the ball underneath it. So, you feel like you're over there. So, one of the things you have to do is be aware of like what people's motives are and why they're doing it. And so I tried to understand why are they making the pitch. It doesn't make them bad people. It means they believe it. Just you know like understand try to empathize with them why are they making this pitch. The other thing we do though is you just make trade-offs. So we have you know we got let's just say customers and shareholders. Pandemic happens, used car prices go up by 60% in 18 months. Suddenly we got to raise our auto prices by 30 to 40, auto insurance prices by 30 to 40%. You're like hm doesn't feel that customer friendly to me. You're like well it's not. On the other hand a shareholder's like I can't give their money away. So, you're just constantly trying to balance between those. And I find like, you know, you just have to use your judgment. You have to listen and try to understand why people are asking you to do what you're doing. And but then I find the biggest thing is treat people like adults. Be transparent and communicate to them. So say to our customers like, 'I'm sorry your prices have to go up. I really am. But I'll tell you what, like I can't do this because used car prices are worth so much more. If your car gets wrecked, I got to give you 30 grand, not 20 grand.' They get it. But then you got to be honest and consistent. So in the beginning of the pandemic, nobody was driving. Nobody was getting in accidents. Our cost go to the floor. So we gave a billion dollars back to customers within two weeks. We gave him the first 600 million backing because we said, you know, and we didn't have to like we had a contract. They gave us some money. And I was like, ah, yeah, but it's kind of like you go to a restaurant and you know, you're having dinner and then there's a fire alarm goes off and you can't eat your dessert and then, you know, you still get charged for your dessert. You're like, 'No, no, like I didn't drive my car.' So, I think you just have to be transparent and then think longitudinally about being fair with people.

Oh. Well, you know, I'd like to say it's always integrated, but there are certainly silos. And but I've come to a different place on silos. I think silos are the responsibility in the creation of leaders. Like I don't think I have people out there saying oh I really don't want to work with marketing or I really don't want to work with this other area like I point. What we do as leaders is we set up organizations and then most importantly we set up metrics. So, I'll give you an example that I was just talking to our head of marketing about yesterday. Leads. So, we buy hundreds of millions of dollars of leads to go find new customers. And the lead people when they have leads they don't need, they resell them. They resell them to a competitor of another business we have that sells leads. And I'm like, well, why is that? And well because I gave them a measure on lead effectiveness where if they get a higher price for those leads by selling to somebody else then their measures look better. That's my fault. That's not their fault. So I feel like in silos as leaders we always have to and I try to lean back say okay what did I do to create this? And I think a lot of it is a science we call measurement science. Like it's so easy. Like we're very goal driven as our company. You put a number out there, we'll go get the number. And but then you're like, okay, well, how hard did you think about picking the number? What alternatives did you look at of picking the number? What are the consequences of picking the wrong number? And I feel like to get rid of silos, leaders have to be better at measurement science because people just do what you ask them to do.

Yeah, it's a good question. It's something we've been working, I've been working on climate change for 30 years. And not so much the genesis like I said like I don't need to get in a fight over whether this is coal fired plants or something else. All I know is the weather's warmer and when the weather's warmer there's more rain, weather storms are more severe. So we need to just focus on resiliency and remediation. So for 30 years we've been focused on that. And it kind of goes at levels right like at the very customer level you try to tell people hey you know if you have bushes right next to your house and a wildfire comes your house is going to burn down. And then you can go up their level and work with the local people and say do you have enough firefighting equipment? You can say do you have good evacuation plans? And you can go above that and say to the state like what are you doing to make sure that there's adequate coverage here because at some point the risk of loss is so high but so remote that the capital markets don't really provide a good answer. So if it's a one in a thousand event then nobody wants to pay for one in a thousand event. But oh by the way since I've been CEO which is my 19th year I don't know how many one in a hundred year events but it's more than one tenth. All right it might be 50. I know it's a lot like you know so you're like okay well that math doesn't work. And so we work with the states to try to create ways in which they can do it. And we've tried to work at the federal government but it hasn't really worked. The federal government spends a lot of money a year on it like about $25 billion a year. Some of it's really well spent, some of it's not that well spent. And so trying to get the federal government organized has been really hard. We've made a lot of progress on the other ones. But it's really about helping people figure out that, you know, everybody wants to ignore that it's going to happen. And our job is to look longer term and just take the hit. So like in 2007 in California we stopped taking on new customers because I said this is crazy. You know people got stuff around the house and then we said you know what if you have bushes really close to your house we're not going to do it but if they're more than 100 feet away we'll insure you and people got really mad at us. And so then 2018 I'm in the Paradise Fire. After the Paradise Fire, I'm with a fire marshall going through the zone and there's a big X on the house. And I said, 'What's the X for?' And he said, 'Well, that's if there's bushes close to the house, we put an X there because I don't want the firefighters to stop because they put their life at risk. The house is going to burn down anyway.' People were mad at us because we told them this was going to happen. I'm not saying we're prescient or anything like that. It's not really that complicated but here like you know so I think trying to help people and so what I'm happy about is people now seem more focused on it.

Yeah we support like we'll help you figure out what your evacuation plan is. We give you discounts if you have like hurricane shutters on and you live in a hurricane zone. We age rate your roof so that if your roof is 20 years old then you pay more for insurance than if your roof is 5 years old. Some people think, oh well that's just Allstate doesn't want losses. I mean yeah that's part of it obviously but the other part is we get paid to fairly spread costs across society. That's what we do. And if we do that right, we keep five to 10 cents a dollar. If we don't do it right, our money goes away. So, when you're spreading costs, if you have a 20-year old roof and your neighbor has a 5-year old roof and there's a hail storm, you're going to have more damage, so you should pay more than your neighbor. So, we try to help people see that and we try to give them economic signals to help them understand it. And you know, it's worked for us. No, I get the fact that also sometimes people just don't are not even aware of what are the risks.

Yeah well the yeah so in severe weather so we have a I'm proud of the fact I guess that we have a really an industry-leading homeowners business we make more money than everybody else and we're there for seven and a half million customers. But then you're like, 'Okay, well, you know, maybe you got it wrong on climate. Maybe there's going to be a whole bunch more storms and like you're just waiting to go bankrupt.' And so when you look underneath the increase in losses and catastrophes, it's kind of interesting that only about 20% is because the weather is more severe. That's what the media wants to blame and all, but the other 80% is largely due to the fact that we're building houses in the wrong places. And we're building bigger houses. So the you know what used to be a billion dollars is now $2 billion because you got a lot of houses that are right next to the fire zone or on the coast or something like that. Those last two things you can do with math. Like I can figure out we do geocoding by house by roof type down to the house. So we can figure out those last two things. Well the 20% we're rolling the dice on but that's why we get to make money.

You're out. Exactly.

Well I think I'll start really high. So this is about 14 years ago. I was trying to hire a guy who still works for us as our CIO and we're at dinner and I quipped this statement. I was trying to figure out how I got him wooed to us. I said, 'Look, I want a technology-driven strategy, not a strategy supported by technology.' I didn't even really know what I meant when I said it. But really, you think of technology-driven strategy. I'm going to take technology. I'm going to see what it can do for my customers, see what it can do for my business model, and I'm going to build a strategy around that. And so it's really about creating the future, not following trends. A strategy supported by technologies. So I got this strategy. Give me some software that helps me do what we want. So he took that developed it. We've worked collectively as a team really to sort of how do you have a technology-driven strategy? And so I think when you look at the market people talk about technology companies. I'm like, well, really every company today is a technology company that I know of. Like, some use technology just in their space. Other people sell technology across industries, but really every company's a technology company. So, I think it does have to get embedded into what you do. And so, what we try to do is leverage it in a way that makes it better for our customers. Be focused on that. We invest in stuff. Sometimes it works, sometimes it doesn't work. So we've been investing in telematics for I don't know probably 10, 11 years. Probably I don't know billion dollars in and we track 40 million. We provide crash detection for 40 million customers every 15 seconds in America. Not necessarily what you think of as an insurance company. So we're trying to swim upstream rather than just your car gets wrecked, we'll fix it. To hey we'll help you protect your stuff and your family. We've other stuff is farther out like we just joined we're working on quantum computing. I don't really know what that can do for us. All I know is it's going to be different. And so as a technology-driven strategy you got to both figure out how to use what you can that works today and then invest in some stuff that could just be a complete waste of money. But you know like it wouldn't be the first thing we wasted.

That's a comprehensive question. First, how disruptive? I think it's going to enable us to dramatically improve the customer experience. And I'll give you an example. Just like maybe it's a year ago, and we're big into AI. We have a partnership with Microsoft. We're on the inside working on some stuff. And about maybe six, nine months ago, I get a customer email and it's complaining about what this claim person said. So I'll try to do top and bottom. And I read the email. I think, yeah, this is a terrible email. And so I send it to the head of the property liability business or technology person. I'm like, you know, can't like AI like rewrite this stuff or something? Like this is a terrible email. So the technology person, he takes it and he puts it through Copilot, which is a Microsoft product. And this is literally in 15 minutes. And he comes back and it's like very nice. You know, I had a nice conversation with your wife. As I said to her, I was like, 'Wow, this is great.' You look at the one that our claim adjuster did. They were probably in a car going from place to place dictating it and it's like bullet point sentences. It was terrible. So Copilot writes them. So we decided every claim adjuster doing an email to a person, it's going to go through Copilot. And we don't ask you, you know, like a lot of times it says you want, we don't ask it, it just does it. And so what I would call that really is augmented intelligence. So that's different than artificial intelligence. So I think augmented intelligence is coming fast and going to help us do a better job for our customers. It still uses large language models. I think artificial intelligence with the new DeepSeek stuff and the ability to create individual component large language models that do their own work in the proprietary, so I don't have to use ChatGPT which has got all this information from all these different people, 99% of which has nothing to do with what we're interested in. We can now create our own large language model. And I think that is going to make artificial intelligence enable us to really change jobs. I think we will probably employ fewer people. Back to the question about employment. And so what we're trying to figure out is, okay, if your skill doesn't matter that much, what are the skills that matter? So adaptability, learning quotient, you know, critical thinking. And so I would say one of the things I try to tell our employees is, you know, the best defense is a good offense. So build the skills and capabilities around this critical thinking stuff. Build it around adaptability. So as we're looking at our skill-based model where we do that, we're trying to help people build those skills. The last thing I would say on that is I think companies, and all companies could do this. I didn't come up with this idea, but so this would be about five or six years, maybe it's 10 years ago. I said, I want anybody to be able to apply for any job in the company and I don't want their boss to know and they can interview for and take the job. So, you can internally quit. I'd rather have you internally quit than actually. And I kind of lived in like always like, oh, you know, I know the managers are going to, I need to help this person. No, no, if you're a bad boss, they quit on you. What our team came up with is something even better. They took that structure and they put on top of that our recruiters now work with our skill-based stuff that's in on adaptability and stuff and they proactively call out the people in the company and say, 'Hey, we got this job opening. I'm going to like, I've got it posted on Indeed or something like that, but you look like you fit this job. Are you interested?' So, I feel like that's like building that employee value proposition. So even if AI changes their jobs, we're working to try to help them figure out how do they fit into this new world.