GC’s Enoizi: Industry must focus on “systemic solutions for systemic risks”

The (re)insurance industry must focus more energy on developing systemic solutions for systemic risks as the notion that it can rely on governments for “blank cheques” is not viable, said Guy Carpenter’s Julian Enoizi.

The global head of public sector practice at Guy Carpenter told The Insurer TV in a recent Close Quarter episode while discussing risk mitigation and transfer in relation to climate change that while more work needs to be done, he is confident the industry will get there.

“The industry has done this before in the face of emerging risks and it is just a matter of figuring out today’s equivalent to flatten the risk curve through similar adaptation,” he said.

“It needs to look at the solution through a solution lens, as opposed to simply trying to outrun the problem by financing it,” he added.

While collaboration between the public and private sectors will be crucial, the answer is not to have governments play a bigger role than they need to.

“The idea that we can simply just rely on governments for blank cheques to allow us to underwrite with no risk is not viable,” he said.

“We are going to have to design solutions that give an equitable sharing of risk between the public sector and the private sector. I think we've got to accept that the purpose of the private sector is to de-risk government and the taxpayer, and put more risk into the private sector, to the ability that we're able to sustain it.

“And we're going to have to make sure that over time, we are constantly moving towards a situation where that risk is reassumed by us, as we get more comfortable with the risk, as we learn more about it and as we're able, therefore, to deploy more capital to it,” he added.

Looking to public private partnerships, Enoizi said there is “beginning to be a realisation and understanding of the value of public private partnerships” across the globe, highlighting the influence of two successful British public-private partnerships - Flood Re and Pool Re.

These, Enoizi detailed, have “operated at no cost to the government, and have removed millions, if not billions of pounds of risk from the government’s balance sheet”. He said such schemes have demonstrated a clear success instead of “simply talking about one”.

Closing the +$200bn protection gap

Reflecting on his interview with The Insurer during last year’s Reinsurance Month in which he warned that the industry could face irrelevance if it did not help narrow the +$200bn protection gap, Enoizi observed the gap “is actually increasing, not decreasing”.

Part of the challenge, he said, is the ever changing demographic of risks, ranging from tangible to intangible, including terrorism, cyber, and natural hazards exacerbated by climate change.

According to Enoizi, the industry “struggles” with these risks because “a one year policy isn’t necessarily adapted to something that’s going to occur every 30, 40, 50 years”, with actuarial science also not having the data to measure and monitor these changes.

In order to remain relevant, Enoizi told The Insurer TV the industry will have to look at all it does and promote that value proposition and “do much more advisory work with clients as to what they can do to prepare for risk and mitigate it”.

The industry should also focus more on post-disaster recovery and on redirecting funds towards risk mitigation and adaptation instead of financing post-disaster.

“If you think that £1 invested in preventing a loss translates to £10 saved, and yet 90 percent of what we pay out is paid out in post-disaster claims, imagine what could be achieved if we were to shift that dynamic into spending more money in risk mitigation and risk adaptation. That to me is the opportunity,” said Enoizi.

Watch the 18-minute video with Guy Carpenter’s Julian Enoizi for more on:

  • The goals of the UN’s Race to Resilience initiative and where insurance fits in
  • What the industry could be doing better at in terms of increasing its footprint in building a more resilient society
  • The relationship between the industry and government
  • Possible partnerships between the industry and government around potential pandemic, climate or cyber solutions