Industry must tackle systemic risks head-on: Enoizi

Navigating a world grappling with systemic risks - the mounting threat of climate change, a brewing talent crisis and the persistent spectre of terrorism – requires innovative solutions and collective shouldering of risks, not only to ensure future resilience, but also to maintain the relevance of the insurance sector in this ever-evolving landscape.

That was the view offered by Julian Enoizi (pictured), global head of public sector risk solutions, Guy Carpenter, speaking at Intelligent Insurer’s Re/insurance Outlook Europe 2023 conference, being held in Zurich this week (June 19 and 20), in his session titled called ‘Redefining the value of re/insurance in the context of systemic risk’.

Enoizi believes the insurance industry is “struggling to deal with systemic risks”, partly because of their expansive and simultaneous nature, but also because of the challenges in understanding risks such as pandemics, climate change, and cyber threats. However, he thinks it is crucial that the industry finds ways to engage with these risks, because if it fails to do so, it could compromise its relevance and importance, pushing it into a state of decline.

“Systemic risks are difficult to insure. And, historically, what we do as an industry when we see something too difficult is we walk away from it and exclude it, because we don’t understand it. But that couldn’t be the case with systemic risk,” he said.

“We have to deal with these risks that are evolving and changing, and becoming much more interconnected. As an industry, we have to find ways to participate in those risks, because if we don’t, the danger is that we will leave them to the government who will then become the insurer of first resort, and our relevance will be called into question,” Enoizi explained.

“We are the risk management industry, and if we are not helping customers mitigate, manage and finance risks, then clearly we are not doing our job,” he argued. “We have to think how we rise as an industry to the challenge of managing systemic risk.”

Systemic risks are not just limited to natural disasters, cyber, pandemics and macroeconomic events, it can also impact individual communities or countries. Take the situation in Ukraine, for instance, he said, where the first European war in 75 years has turned systemic risk into a harsh reality.

“The World Bank estimates that rebuilding Ukraine will require between $400 billion to a $1 trillion. The Ukrainian government doesn’t have $1 trillion so there is going to have to be a multinational effort,” he said. “And the only way you can get a trillion dollars in investment into Ukraine is if there is an insurance and reinsurance industry there to facilitate the reconstruction.

“How are we going to do that? It’s not going to be easy, because even if hostilities cease, it is not necessarily a given that the geopolitical situation is going to be way better than it is today. The threat of war may continue to hang over the country, But as an industry we are going to have to be there to ensure that that capital flows into the country.”

Another risk, Enoizi pointed out, was the lack of fresh talent coming into the industry. “We are struggling to win our share of talent into this industry. People don't want to come and work in the insurance industry. It seems we are failing to communicate the industry's problem-solving nature to today's youth and future generations.”

Enoizi believes as systemic risks grow more complex and intertwined, addressing them requires strategies that transcend traditional boundaries and conventional methods as they can be too vast for any single entity to handle. One particularly effective approach, he advocates, is public-private partnerships and pooling of risks.

“A pooling arrangement or mutualisation or socialisation of risk arrangements, brings with it a number of advantages. It is one way to increase the understanding of risks, he said. “By investing premiums into partnerships with academia, we can foster a deeper understanding of these risks, facilitating the growth of a market that would otherwise not exist.

“Terrorism is a very good example of it,” he noted, “the private insurance and reinsurance industries write a lot more terrorism than they did in the immediate aftermath of 9/11.

“Similarly, tackling systemic risks like cyber threats, climate change, and pandemics requires starting somewhere. Using industry’s strength in risk modelling and analytics can allow us to better understand these risks and pay claims more efficiently. And over time, as understanding improves, expose ourselves to more and more of those risks,” he said.

Enoizi stressed that both sectors need to understand that neither has the capacity to tackle these systemic risks independently, and with that governments need to create an environment that facilitates the success of insurance products.

“The problem is that we are not sharing risk equally,” he said. “The government is assuming more and more and citizens are not buying the products that insurers sell. Less than 10% of Americans buy flood insurance. Then there is an affordability issue in some less developed economies.

“Very few governments think about their risk holistically,” he continued. “If you look at the projections for climate change, many of the major cities are going to be underwater in 100 years including London, Miami, New York. What are we doing about it? We need to think about how we finance those, but how we mitigate risk, how we adapt to climate change.”

Enoizi leads Guy Carpenter’s public sector practice, working to identify opportunities for addressing systemic risks and developing innovative solutions to strengthen the cooperation between public and private entities, having led international insurance operations in Continental European, London, and Lloyd’s markets for almost three decades, during which he also served as CEO of Pool Re, a UK government-backed terrorism reinsurer.

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