The plot could develop with Allen becoming a new antagonist. He starts causing chaos and destruction, and the Black Order has to find a way to stop him. Maybe they try to find a way to restore his humanity, but it's not easy as they also have to deal with other threats in the world of D Gray - Man.
One way the plot can develop is that Allen's loss of humanity causes a rift among the different factions in the D Gray - Man world. Some might see him as a new tool to use for their own gain, while others are determined to put an end to his new, dangerous self. His old friends in the Black Order might split in their opinions on how to handle him, leading to internal conflicts within the Order. Also, Allen could start to explore his new 'inhuman' powers in ways that no one expected, leading to new and unexpected threats emerging.
In such a fanfiction, Allen might become a much darker character. He could start to use his powers without any moral restraint. For example, he might not care about innocent bystanders while fighting the Akuma. His relationships with his friends in the Black Order would also be severely strained. They would be shocked and probably try to bring him back to his former self, but it would be a difficult and dangerous process.
In some fanfictions where Allen loses his arm, it could lead to a whole new set of character developments. He might become more dependent on his comrades at first. For example, Lenalee could be there to help him with daily tasks that require two hands. This could strengthen their bond. Also, it might make Allen more determined to fight against the Earl. Losing his arm could be seen as a sacrifice that fuels his hatred for the dark forces. He could start training to use his other abilities more effectively, like his Innocence in a different way that doesn't rely so much on his physical arm.
The story would change a great deal. Allen's ability to fight directly would be hampered. This means the Black Order would need to adjust their battle strategies. Instead of being on the front lines as often, Allen might be more of a strategist or support role. For instance, he could use his knowledge of the Akuma and the Earl to guide the other Exorcists in combat.
If they were trapped in a parallel dimension where only they exist and they have to find a way back. They would be completely dependent on each other. They might start to open up about their past traumas, like Allen's past with the 14th Noah and Kanda's past with Alma. Through sharing and relying on each other, their relationship could evolve into a deep and trusting friendship or something more.
One possible scenario could be that Allen is forced into a situation where he has no other choice but to become a Noah. Maybe he is tricked by a powerful Noah who manipulates his past traumas and the power of Innocence within him. The dark side of the Noah's power might seem appealing in some way, like offering him a way to end his constant struggle against the Akuma and the Earl.
For Allen, you can focus on his internal struggle. Since he's being hidden by the Earl, he might be conflicted between his hatred for the Earl and the need to survive. Show his determination to escape and continue his mission. For the Earl, explore his motives for hiding Allen. Is it just to toy with the Black Order, or does he have a deeper, more sinister plan? Develop his character by showing his different sides, like his moments of calm calculation and his fits of maniacal laughter.
The plot might also be that the Earl's hug is a way to get Allen on his side. He could be trying to convince Allen that there is a different path than the one he's currently on, and this hug is the first step in that persuasion.
One great D Gray - Man female Allen fanfiction is 'A Different Path'. It explores an alternate universe where Allen is a female and has some really interesting character interactions. It delves into how the other characters in the D Gray - Man world would react to this change in Allen's gender, and it's full of action and mystery.
There could be many interpretations in such a fanfiction. Maybe the Earl has some complex motives behind hugging Allen. It could be a moment of false kindness, where he's trying to manipulate Allen in some way, perhaps by making Allen lower his guard.
I really like 'The Unspoken Connection'. In this fanfic, the chemistry between Kanda and Allen is palpable. It starts with a simple mission they go on together and gradually builds up their relationship in a very believable way. It's a great read for fans of the pairing.