The P&C industry must do more to tackle the expanding $200bn+ protection gap or run the risk of drifting into irrelevance in the eyes of its customers and governments, argues Guy Carpenter’s Julian Enoizi.

Julian Enoizi – MC 2022

Enoizi attends this Monte Carlo in an unfamiliar guise. After almost nine years heading the UK terrorism mutual Pool Re – and before that a variety of different insurers including AIG, CNA and Argo – he recently joined Guy Carpenter to lead its global public sector business in a newly created position. 

The Insurer caught up with him to understand his plans for the business, what can be done to close the protection gap and his priorities for the future. 

The task, Enoizi explains, is to marshal Marsh McLennan’s various different resources – including both Marsh and Guy Carpenter, as well as its risk advisory businesses Oliver Wyman and Mercer – to develop “end-to-end” risk solutions to the mega-trends facing the world today in partnership with markets and governments. 

Referring to global mega-trends – which he lists as climate change, changing demographics, the health-wealth gap and digitisation – he states: “The pandemic, climate change risk and indeed the war in Ukraine are recent reminders of the nature and severity of the risks we face. They won’t be the last systemic risks we face and they need different thinking and solutions that go beyond simply risk financing. 

“These challenges present an enormous problem for society. But also an opportunity for our industry to show that we can keep pace with the risks of the future and evolve our product offering to remain relevant to our clients who are grappling with these issues and at the same time, protect society by increasing resilience against future shocks.” 

He recognises the industry’s balance sheet is finite – and clearly not capable of covering systemic risk events in full – but points out that capital is just part of the offering the industry can provide to governments in managing their worst-case risk exposures. 

“Yes, of course financing risk is what we are known for but we have much more to offer as part of our value proposition. Loss mitigation, risk research, adaption of new risk management techniques, modelling and pricing are all part of the industry’s suite of product offerings. 

“This is what we mean by an ‘end-to-end risk solution’ and this is what governments value rather than simply a limited risk transfer proposition. Remember, they have an alternative in that regard because the taxpayer is always the insurer of last resort. So what we as an industry must offer is what the taxpayer cannot. If we do that, then more public-private partnerships will emerge. This is precisely what Guy Carpenter and Marsh McLennan are focusing on.”  

In fact, the group is already regarded as the industry’s leading adviser on public-private risk partnerships. Whilst he declined to comment on specific clients, well known examples include the post-9/11 terrorism schemes, National Flood Insurance Program and the Californian earthquake and wildfire funds. 

“This is what we mean by an ‘end-to-end risk solution’ and this is what governments value rather than simply a limited risk transfer proposition”

Internationally, examples include the Mexican nat cat scheme Fonden and the UK’s Flood Re. Guy Carpenter is also understood to advise many of the European terrorism pools including France’s Gareat, the UK’s Pool Re, Germany’s Extremus as well as smaller schemes for the Netherlands and Belgium.

GC Securities also advises on Pool Re’s landmark ILS placement and via its parametric and risk consultancy services arm also structures parametric solutions where appropriate. Along with its strategic advisory, data analytics and advantage knowledge hub, Marsh McLennan overall is well positioned in the public sector space. 

Indeed, it was the group’s pedigree in this area that Enoizi says drew him to the role in the first place. 

“Marsh McLennan’s track record is superb. No other professional and financial services firm has done as much to develop risk partnerships with governments and multinational agencies which benefits national economies, society and indeed our industry.” 

Nonetheless, the protection gap continues to grow. Defined as the difference between the full economic cost from a loss event and the proportion which is covered, Swiss Re estimated it at $162bn in 2021 just from nat cat events alone (see graphic). Factor in other global systemic risk losses – such as pandemic, cyber and terrorism – and it would have clearly exceeded $200bn last year.

Insured-vs-uninsured-losses,-1970–2021,-in-$bn-at-2021-prices-

Enoizi says it is difficult to accurately estimate the gap. “Take cyber, for example. The market may be $10bn in size today and projected to grow but a catastrophic event could result in an economic loss many times this,” he explains.  

But he recognises it is widening. One reason, Enoizi notes, is the P&C industry is no longer keeping pace with global economic growth. 

“In the decade preceding the financial crisis, the global P&C market grew on average by around +4.5 percent a year, more or less in line with world GDP at +4.9 percent.” 

But in the decade since, that margin has “widened substantially”, he points out, with average annual global GDP growth of +4.7 percent outpacing insurance premium growth of +3.2 percent. 

This is unwelcome on many levels. First, the cost is disproportionately borne by poorer societies. For example, Swiss Re recently estimated insurance covered a mere 5 percent of economic losses from flood events in emerging markets over the past 10 years compared to 34 percent in advanced economies.

Pakistan floods

Devastating Pakistan floods highlight protection gap issue

Examining all 2021 nat cat events, there were 11,800 fatalities in total, the reinsurer estimated. The likelihood is that this would be significantly lower with more investment in risk mitigation techniques – such as flood defences – which typically accompany (re)insurance solutions. 

There is another downside. If the industry does not offer solutions to the greatest threats faced by societies and companies, then it risks drifting into irrelevance over time in the eyes of its customers, potential customers who may chose not to buy and governments who will assume the risk themselves rather than risk the reputational damage of cover not being applied post event despite the taxpayer having provided a backstop. 

This chimes with Enoizi’s view and he is very alert to the risk as a result. “As an industry we have much to offer but we have to actually offer it. It is understandable that insurers – and reinsurers – were rushing to exclude pandemic after Covid-19 struck but equally we have to be mindful of how that looks and that if our customers just see us as ‘excluding’ risks when they emerge rather than seeking to understand them and design innovative solutions, then our collective reputation as an industry will be damaged.” 

To be fair to (re)insurers, in the immediate aftermath of Covid, the industry did invest substantial time lobbying governments about jointly developing pandemic solutions which would combine (re)insurance risk management skills with government backstops. In many cases, Marsh McLennan was heavily involved. In the US, for example, John Doyle, then president and CEO of Marsh, lobbied the Trump administration on developing a pandemic backstop while Guy Carpenter and Oliver Wyman advised on the UK’s mooted Pandemic Re solution. 

These – together with other proposals worldwide – struggled to gain traction, primarily because governments were preoccupied with the immediate challenges of tackling the pandemic. The Ukraine conflict and the struggling global economy is unlikely to change things anytime soon, particularly since, in Enoizi’s words, the “reality of an unlimited guarantee means governments are unlikely to hand them out anymore but instead they will expect the industry to develop different, more innovative solutions that share risk and respect certain rules of engagement”. 

While this means we are unlikely to see any major pandemic public-private partnership schemes emerge soon, the human and economic cost of natural catastrophes is a reminder the industry must keep knocking on policymakers’ doors with ideas that keep it front of mind when governments think about how to manage the risks they hold on their balance sheets. 

“Ultimately, it is still the same sport. I’m not Ted Lasso. Brokers and underwriters both realise the importance of staying relevant and narrowing the protection gap. We should see it as an opportunity”

Indeed, Enoizi has been involved in one such idea, a recently launched initiative with the UK’s Department for International Trade. Called Resilience UK, the idea is to combine investment in risk mitigation measures for perils such as climate change or cyber, whilst simultaneously providing a finite amount of pooled industry capacity from the London market. The idea being that as resilience increases and understanding of the risks improves through new techniques, more capital will be deployed. Moreover, should the worst happen, the opportunity exists for governments to step in and provide liquidity post-event if it is deemed desirable to do so.

“It is early days – Resilience UK was only unveiled earlier this year – but this is exactly what the industry should be doing. Working together and with governments, with markets and companies such as Atkins (a subsidiary of the global consultancy group SNC-Lavalin) to design and develop solutions that bring the best of engineering and risk and combine them into a solution to increase resilience so that the disaster we see unfolding in Pakistan can be lessened in both human and financial terms.” 

The Insurer’s time is up. But one final question. Is it strange attending the Rendez-Vous as an adviser rather than a risk carrier? 

Enoizi laughs: “Ask me in two days but I must say that ever since I joined Guy Carpenter in April, I have been impressed by the sheer depth of resources within the Marsh McLennan family and also the entrepreneurial culture it inspires.”  

And he finishes with a nod to a popular television show. 

“Ultimately, it is still the same sport. I’m not Ted Lasso. Brokers and underwriters both realise the importance of staying relevant and narrowing the protection gap. We should see it as an opportunity.” 

It’s only been six months but already spoken like a true broker.