With a track record that saw him significantly alter and advance the strategic direction of Pool Re in his eight-plus year tenure as CEO, Julian Enoizi (pictured) has seen first-hand – and supported – the changing attitude towards public-private partnerships.
Now CEO of Guy Carpenter Europe and chair of Marsh McLennan’s Global Public Sector Risk Practice, he remains a keen advocate for the role state-backed solutions have to play in bridging the ever-more concerning protection gap. “There is still a yawning protection gap,” he said. “The tailwind for insurers and reinsurers is that there’s still an enormous amount of uninsured loss out there, which gives them a huge opportunity. The question is how they can access that opportunity.”
That’s where the role of public-private partnerships really enters into the conversation. When the re/insurance market couldn’t insure the full extent of terrorism risk, the government came to the aid of the UK economy, he said, creating a market for insurers and reinsurers where one would otherwise not have existed. Looking at the protection gap that exists today, it is clear that governments may have to do likewise in other areas of risk.
Turning his attention to the cyber sector by way of example, he noted that ostensibly it’s looking “particularly robust” at the moment, even seeing insurance-linked securities (ILS) coming into the market. “But does that solve all the problems? What about the advent of artificial intelligence and the impact that’s going to have on our lives in the future, and whether malicious actors could use it to create damage?
“These are the kind of things where it’s in the interest of governments to ensure that they’re not putting taxpayer money at risk when private capital could do the job. But on the other hand, they need to create the right set of circumstances to ensure that capital can flow. That is what public-private partnership is – a safety net to allow a market to develop.”
Another key area for consideration is ageing populations and the stress that this puts on healthcare systems. It’s a huge opportunity for the industry, he said, to find examples of where insurance could be brought in to help reform national health services, and where forward-thinking governments could use insurance and reinsurance in order to achieve their healthcare policy objectives and commitments.
Enoizi highlighted the need for the right conditions to be in place for public-private partnerships to thrive. Chief among these is the industry's understanding that it shouldn’t look to governments to assume risks that the private sector should be able to assume. “In other words, the industry should acknowledge and find ways to continue evolving its role. It should not simply accept that such risks are the exclusive domain of governments,” he said.
“In any partnership, there has to be an optimal sharing of risk, which, at the end of the day, means that the private sector should assume as much risk as it can. Only the remainder, only the uninsurable portion of the risk should then stay with the government as the insurer of last resort and ultimately, the taxpayer.”
He also emphasised the need for the risk-sharing mechanisms created as vehicles for these partnerships to be inherently flexible in nature. That means that as, over time, the industry becomes more comfortable with the risk as its knowledge of the risk increases, it can look to deploy more capital towards the risk without changing the original scheme. The safety net can be lowered.
“I also think in the interests of both the industry and society at large, you should have risk mitigation as part of the design of any scheme,” he explained. “Then, not only are you financing the risk in the most optimum fashion, but you're also encouraging the ultimate insured to mitigate their own risk and invest in their own resilience. And the industry then should be ready to either absorb more of that risk because that mitigation has been put in place, or perhaps look at a risk-reflective price that reduces over time because the risk is ameliorating.”
When you consider the impact of climate change, which can give rise to the increasing frequency and severity of catastrophic weather events, you can understand the mission-critical role that adaption and mitigation measures have to play, he said – and also the part that the re/insurance industry has to play in incentivizing and encouraging these measures to be put in place as part of the risk transfer mechanism. There’s a lot of discussion about risk management, but underpinning these conversations is the recognition that these mitigation measures inevitably incur a cost.
“Whether it is a government investing in flood defenses at a time where priorities might be elsewhere, or an insured investing in those defenses at a time of economic difficulty, there are always going to be other priorities,” he said. “But there is certainly much more awareness and discussion about risk management, particularly where it can be built into the fabric of the product.”
He highlighted some of the examples he has seen as chair of Marsh McLennan’s public sector practice, including the rollout of a community-based catastrophe insurance program in New York, where part of the contract terms were that in exchange for insuring the 8,000 homeowners it did, the municipality had to invest in flood defenses. “We're working on half a dozen more products like that right now, and not only in the United States., However, the gestation period with public sector initiatives is long and they take a long time to come to fruition as a result.
“Because demonstrating that if I invest $1 in adaptation/mitigation, that might save me $18 in claims costs down the road, is still a debate that the insured and the industry are having. So, our work is around illustrating that you can get back on your feet economically, much quicker if you're making the right investments than if you’re simply waiting for a claim payment post-event. Winning hearts and minds takes time.”
