Resolve 'Enhance Your Account Security' warning for AirTag on iPhone

I want to add my Apple AirTag to my iPhone, but I receive a warning saying:

“Enhance Your Account Security

AirTag uses end-to-end encryption to keep your location information private.”

in next page, "This update uses end-to-end encryption.

To enable end-to-end encryption on this iPhone, your Apple ID settings need to be updated"

I am receiving this message. How can I resolve this issue?

[Re-Titled by Moderator]