There’s no point in devising novel solutions for systemic risk if reinsurers won’t put capital behind them. That’s why Guy Carpenter’s new global head of public sector, Julian Enoizi, will be hoping to bring everyone together at the Monte Carlo Rendez-Vous.

Enoizi has been with Guy Carpenter since April in a newly created role, reporting directly to chairman David Priebe. He was previously CEO of Pool Re, the UK’s state-backed terrorism reinsurer and a good example of how cooperation between the public sector and insurance industry can work well.

He believes such schemes will become more common. “My appointment reflects the view that this is going to be an increasingly important part of the insurance, reinsurance and risk landscape going forward,” he told Monte Carlo Today.

The reason for that is, he said, “self-evident”—the growing prevalence and visibility of systemic risks. Most recently, it was the COVID-19 pandemic, but others have risen to prominence in recent years, such as climate change and cyber threats (pushed once again to the fore with conflict in Ukraine).

“The pandemic illustrated exactly how big a systemic loss could be, and some say that systemic cyber loss could be bigger,” Enoizi explained.

On top of that, there are various “megatrends” to take into account: ageing societies, the health wealth gap, mass migration and food and water scarcity—the last three potentially exacerbated by climate change.

All could potentially give rise to risks that insurers cannot bear alone, but that they cannot afford to ignore.

“As an industry, those are the issues our clients are dealing with, and we therefore have to come up with solutions for them if we want to remain relevant as a strategic partner.”

Pool Re, where Enoizi spent almost nine years, provides a good example of both the types of risk and how partnerships can help. While terrorism was historically difficult to insure, the public-private partnership enabled the industry to become more comfortable with the peril.

“Through data and analytics and modelling, the industry has understood that risk and been able to compartmentalise it into conventional and non-conventional terrorism. That tail part of the risk remains relatively uninsurable, but vast swathes of what previously caused a market failure are now insurable in the private sector,” he said.

“That has to be the model for other forms of risk we’ll be dealing with for many years to come.”

The role for reinsurance

Pool Re might offer a model but the precise structure and operation of similar schemes around the world vary as much as the risks they cover.

“No two are the same,” said Enoizi. They do, however, have some things in common, and one is that they easier to introduce than disband.

“One of the problems with public-private partnerships is that once you set them up, it’s very difficult to wind them down.”

As a result, Enoizi insists, certain principles should be followed when creating such schemes. One is that they shouldn’t seek to “crowd out” the private sector. That means that there should be an equitable distribution of the risk between the public and private sectors—and that this can adapt to changing circumstances.

“As the risk evolves, the nature of the public-private partnership should evolve with it,” he said.

Schemes should come with a shelf-life. In some cases, that’s explicit—Floor Re, for instance, was set up with a 25-year time—but regardless, it should always be the intention that they will be limited in duration.

“There should be a goal to say at some point that the private sector will be able to take the risk on its own without the crutch of government support.”

Finally, to enable that to happen, there must be incentives for insureds to mitigate the risk.

“A big part of success for these structures is designing at the outset not only a risk-financing mechanism that gives confidence to the consumer but a risk resilience mechanism that induces them to take good care of themselves and implement risk management,” said Enoizi.

The state, the public and re/insurers then all have a role to play in limiting potential losses to bring the risks within the private sector’s capacity. That assumes the capacity is there, and this is a big part of what Enoizi hopes to achieve at Monte Carlo.

“Public-private partnership works only if two parties are at the table,” as he put it. Along with its sister companies, Guy Carpenter is trying to create “end-to-end solutions”, bringing together strategic advice, risk mitigation and post-disaster recovery, as well as risk transfer, but the last still depends on underwriters’ support.

“We can spend a lot of time designing these kinds of solutions, bring expertise and different kinds of innovative solutions, whether parametric or capital markets, but ultimately the reinsurance industry needs to put capital behind them,” he said.

“For me at Monte Carlo, that will be one of the big discussions.”