For those extreme events that happen at the very edges of what we think is possible, broader cooperation and planning is key. The industry also has the expertise to incubate ideas to mitigate risk, as well as strategies that help curb the growth in potential losses. This will ultimately allow the industry to take more of the risk in the future and better protect its clients.

XPRIMM: Mr. Enoizi, you have spent an entire career working for top re/insurance companies in positions that allowed you to have a general view of the trends in the industry. In your opinion, what are the most significant challenges currently facing the re/insurance sector?

Julian Enoizi: There is an incredible amount of change going on in the world today, from climate- related issues, energy transition, political instability and the pace of technology. All of these broader issues impact (re)insurance companies’ response to evolving market needs. They present substantial challenges, yes, but also the opportunity – and in fact the necessity – to create solutions. Many of these challenges are intertwined. In particular, three challenges that go hand in hand are: emerging risks that are difficult to insure, the paths the industry choses to develop innovative solutions to those risks, and the ever-increasing need to attract different skill sets into our business as a result.

Take cyber as an example. As technology has evolved and become embedded in our daily lives and the global economy, the need to provide (re)insurance products has grown exponentially. The types of threats posed by this risk are constantly evolving, and the skillsets needed to create relevant coverage, assess and model risk scenarios, define and implement mitigation strategies, and attract capital to back a constantly growing sector are essential. The industry has proved continually through periods of change its ability to respond.

XPRIMM: What are, in your opinion, the most important lessons learned from recent global events, such as natural disasters or the COVID-19 pandemic? Did they leave a long-lasting impact on the industry?

J.E.: The impact of events such as COVID-19 – or indeed the increasing severity and frequency of climate-related events – are clear for all to see. As an industry, it is our role to provide advice to our clients and other constituents regarding how to deal with the problems they face and to develop solutions to those challenges. However, in many cases, those solutions require partnerships – public/private partnerships are essential for the most complex challenges.

Many of the issues confronting the sector today are no longer localized in the way we’ve historically defined risk. COVID-19 underscored this and made it clear that risk has become increasingly global. Climate and technology are also broad and do not stop at national borders. For some product parameters, recent events have underscored the need to better understand coverage boundaries upfront and the need for solutions beyond those boundaries.

Even as we know that really bad things can actually happen, we’ve never been that good as a society in committing to paying for risk funding or mitigation strategies. We are hopefully getting better at that. There is clear research that shows the incredible economic benefit of having the right insurance solutions in place when an event occurs. The more prepared we are, with clear understanding of each constituent’s role in recovery, the more robust long-term recovery is. The opposite is also true, if we aren’t prepared.

XPRIMM: What emerging risks do you see as particularly significant for reinsurers in the current market environment?

J.E.: There are numerous emerging risks that the industry is grappling with right now. Climate-related risks are a critical area of focus both in terms of managing the direct impact of the frequency and severity of events and managing the transition to a net-zero carbon environment. We have already touched on pandemic, which – now that we know the fallout first-hand – needs to remain on the radar. Man-made risks, such as cyber and terrorism, continue to evolve, and we have seen the re-emergence of war-on-land risks.

Guy Carpenter is constantly working to develop not only products to address these issues, but also to innovate structures that can best counter them. Public-private partnerships are something that, in my view, have a core role to play in addressing the scale of these exposures. They allow equitable sharing of risk with governments, which is essential for the largest, most-complex scenarios. The industry has the expertise to model, price and finance risk within boundaries that encompass the vast majority of exposures.

But for those extreme events that happen at the very edges of what we think is possible, broader cooperation and planning is key. The industry also has the expertise to incubate ideas to mitigate risk, as well as strategies that help curb the growth in potential losses. This will ultimately allow the industry to take more of the risk in the future and better protect its clients.

XPRIMM: What role do you believe technology plays in shaping the future of re/insurance sector?

J.E.: The development of new technologies and the potential they create is only going to accelerate. Many companies suffer from issues related to legacy systems, which prevent them from increasing their efficiency. At Guy Carpenter, we have invested heavily to harness the power of the data we hold and convert it into actionable insights that can enable better decision-making, both for us and our clients. No discussion on this topic can be complete without mentioning the rise and potential of artificial intelligence, which will complement the expertise of brokers and underwriters beyond simply increasing efficiency but by allowing better, more-informed decision making.

Technology is poised to clean up substantial inefficiencies in workflows, allow for more accurate understanding of risks, better assess trends and threats apparent in the data, and design more effective solutions. Better understanding and quantification also lead to more efficient use of capital. But we have to work together as an industry to get there. No single company can influence the broadest changes necessary on its own.

XPRIMM: A hardening reinsurance market would obviously impact direct business. There is a real possibility of leading to an increase in insurance prices, at least for certain classes of risk, and thus hindering the efforts made for reducing the protection gap. How do you comment?

J.E.: When considering the insurance protection gap, it is important to distinguish between insurable and uninsurable risk. The reinsurance market is principally concerned with the transfer of insurable risk. Assessment of appropriate risk views are constantly evolving with new information. The degree and type of loss activity in recent years led to a reassessment of assumptions that caused corrections in pricing and structure of products. This was necessary to retain capital in the sector.

Greater confidence in the ability to quantify risk heightens the ability to create solutions that respond to protection gap issues. Uninsurable risk – as linked to the protection gap – is, on occasion, best served through the application of both public and private capital, in the form of government response/capital and private funding. Pool Re is an example of the state and the reinsurance market working together to provide solutions for “uninsurable risk,” narrowing the protection gap over time, making at least parts of it insurable.

The reinsurance market is also an important source of innovation. It enables products such as parametric reinsurance, which addresses resilience and the protection gap through, for example, the ability to make payments in relation to drought in some of the most economically challenged parts of the world.

XPRIMM: How are reinsurers approaching issues of sustainability and ESG factors in their underwriting and investment practices?

J.E.: Reinsurers, like many other sectors, are seeking to align themselves with the United Nations Environment Programme’s Principles for Sustainable Insurance and the United Nations Development Programme’s Sustainable Development Goals, which address environmental, social and governance (ESG) risks and opportunities. This means that in addition to addressing their own operations, reinsurers are increasingly reviewing their investment and underwriting strategies.

The main focus currently is on gathering data to meet the increasing disclosure requirements from regulators and other stakeholders. This has been easier on the direct and facultative business, where it is clearer what is being insured. Reinsurers are now looking for more information on the mix of business in treaty portfolios, particularly reinsurers domiciled in Europe, who will begin reporting under the EU Taxonomy in 2024.

XPRIMM: “Insurers will drop ambitious climate collaborations and vote instead with their feet” reads a report issued by Forester by the end of 2023, quoting examples of big (re)insurance groups that have left the Net-Zero Insurance Alliance. How do you comment on this?

J.E.: While it is true that a number of companies withdrew from the Net-Zero Insurance Alliance, some citing antitrust concerns, most of the companies that have withdrawn have reaffirmed their transition and net-zero targets.

Insurers and reinsurers continue to improve the data captured on companies’ sustainability goals, ESG scores and emissions data to allow them to manage their own investment and underwriting transition strategy. While managing and reporting against their individual goals, we expect that companies will increasingly want to trade with suppliers and counterparties whose own sustainability goals are aligned.

With regard to the environmental side, insurers and reinsurers look at what is known as double materiality – what is their own impact on the environment and what is the impact of the environment on their own business. At Guy Carpenter, we are supporting our clients to understand where there is confidence in the physical risk impacts of climate change and help clients build that into the current view of risk to ensure adequate pricing and capital and to analyse their portfolio under future climate warming scenarios.

XPRIMM: In Monte Carlo, in 2022, industry representatives were speaking about an “indication of a defragmentation trend in the world which makes operating globally more difficult.” Almost 2 years after this moment, how do you consider geopolitical factors influence the dynamics of the reinsurance industry?

J.E.: 2022 was the tail end of the pandemic and the multiple lockdowns, which had led by necessity to a reduction in globalisation and increased local decision making. COVID-19 highlighted the real consequences of a truly global event in defining products and coverage. Climate change also has ongoing global implications when defining solutions. Man-made risks, such as geopolitical conflict and technology dependence, also have global implications – witness the interruptions that have occurred in the Suez Canal for example or as a result of the Ukraine conflict, both of which have interrupted the flow of trade, causing supply chain interruption. These highlight the vulnerability that exists in a globalised world where businesses are harmed by geopolitical events in a way that they have not been in the past and have therefore not had to consider. These things undoubtedly impact our industry, but it is nevertheless our job to evolve solutions that allow the industry to thrive.

XPRIMM: To conclude – what should be, in your opinion, the absolute priority for risk undertakers in this moment?

J.E.: Understanding the price of a product that is being sold and the value of a product being bought are critical elements in a trade. It is the role of the broker to make the market that satisfies both parties through the transaction, but it is also the role of the broker to advise the client on a multiplicity of issues that they are dealing with on a daily basis. Those clients should therefore maximise the potential that their broker can offer in helping to manage their business through the expertise they provide in advisory, analytics and transactional services.

The Global Risks Report, published annually by the World Economic Forum in collaboration with Marsh McLennan, identifies key risks both over the shorter and longer terms. Extreme weather events are identified as the top 3 short- and long-term risks. Industry-impacting issues of inflation and cyber insecurity are both in the top 10. For additional insights, access the full report here.

Partnering with our clients is at the very core of what Guy Carpenter does, and this means advising our clients of the changing market dynamics in both a proactive and timely fashion. Consistent, transparent and open dialogue with our clients allows them to take risk appropriate decisions relative to their own business, and our advice and support extends well beyond the purely transactional – as part of Marsh McLennan, we are uniquely positioned to assist clients across all aspects of risk, strategy, and people.