Man-made risks outstrip nat cat as Lloyd’s research shows $546.5bn annual GDP under threat in leading cities

An estimated $546.5bn of GDP is at risk each year from 22 perils across leading cities, with man-made threats posing greater vulnerability than natural catastrophes, finds Lloyd’s City Risk Index. The new research shows that Tokyo, New York and Manila have the highest exposure, and that boosting resilience would reduce annual GDP at risk in the 279 cities studied by £73bn. The research also reveals that Asian cities dominate the index, accounting for 44% of the global total at risk. The Lloyd’s City Risk Index is produced by Lloyd’s and the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School. It measures the impact of 22 threats on 279 cities’ projected economic output. The index shows how much economic output (GDP) each city would lose on average annually from various types of rare risk events and those that occur more frequently. In the research, GDP at risk means an annual average loss estimate from a certain event occurring. For extreme and rare risks that might only occur every 50 or 100 years, the index averages out losses to produce an annual average figure. When calculating the amount of GDP at risk, each city’s resilience is considered. This includes a city’s governance, social coherence, access to capital and state of its infrastructure. If a city is very resilient it can expect to have lower losses. The 2018 Lloyd’s City Risk Index finds that 279 cities with combined GDP of $35.4trn risk losing an average $546.5bn in economic output annually from the 22 perils. Man-man threats are on the rise and account for 59%, or $320.1bn, of total GDP at risk. Natural catastrophes account for the remaining $226.4bn. Market crash is identified as the biggest threat to the cities’ economies, with an average $103.3bn of GDP at risk each year. Interstate conflict is second with $80bn and windstorm third on $62.6bn. Despite the dominance of man-made threats, climate change is still a major risk driver – placing $123bn of annual GDP under threat, according to the index. The research also shows that ten cities with the highest exposure have a combined $126.9bn of economic output at risk each year. This is almost a quarter of the total under threat and more than cities in Europe and Latin America combined. The top ten cities will experience 37% of the expected global loss from tropical windstorm ($23.7bn), 28% of all flood loss ($12.1bn) and a quarter of all financial loss from heatwave ($0.5bn), the research shows. Seven of these cities account for almost a third of earthquake risk. Tokyo has the most GDP at risk, totalling $24.3bn, followed by New York with $14.8bn and Manila with $13.3bn. The top European country is London, ranked eight with $8.4bn of annual GDP under threat. The top ten cities with most GDP at risk each year are Tokyo – $24.31bn New York – $14.83bn Manila – $13.27bn Taipei – $12.88bn Istanbul – $12.74bn Osaka – $12.42bn Los Angeles – $11.56bn Shanghai – $8.48bn London – $8.43bn Baghdad – $7.91bn Asian cities stand to lose the most GDP to risk, accounting for $241.3bn or 44% of the global total, with tropical windstorm the costliest risk at $60bn. North American cities can expect to lose $93bn each year, or 17% of the annual total, and European cities $70.3bn, or 13%. In both regions, market crash is the single costliest risk. Cities in the Middle East and Africa stand to lose $97.2bn of their GDP in total, which equates to 18% of the global figure, with interstate conflict the costliest risk. Latin American cities make up 8% of the global total at risk on $44.7bn. London, Moscow and Paris are the most exposed European cities to a set of 22 risks, with a combined $24.6bn of annual GDP – or a third of Europe’s total losses – under threat. The index finds that building resilience to the 22 threats would reduce GDP at risk across the cities by $73.4bn. This would be the annual reduction of economic output at risk if every city in the index improved its resilience to the highest level. The 22 threats with average annual GDP losses are: Market crash – $103.33bn Interstate conflict – $80.00bn Tropical windstorm – $62.59bn Human pandemic – $47.13bn Flood – $42.91bn Civil conflict – $37.15bn Cyberattack – $36.54bn Earthquake – $33.96bn Commodity price shock – $20.29bn Sovereign default – $17.97bn Terrorism – $9.93bn Drought – $8.91bn Plant epidemic – $7.94bn Power outage – $7.48bn Volcano – $6.80bn Solar storm – $6.57bn Social unrest – $6.19bn Temperate windstorm – $3.72bn Freeze – $3.09bn Heatwave – $1.77bn Nuclear accident – $1.26bn Tsunami – $0.98bn Lloyd’s chairman Bruce Carnegie-Brown said the index shows that investing in resilience – from physical flood defences to digital firewalls and enhanced cybersecurity, combined with insurance – would help significantly reduce the impact of extreme events on cities, improve economic stability and enhance prosperity for all. He urged businesses, insurers and governments to use the index and work together to reduce exposures by building more resilient infrastructure and institutions. “No city will ever be completely risk-free. Disruptions will always occur, whether it is the result of a hurricane or a cyberattack. We have created this unique index to help cities around the world identify, understand and quantify their exposure to risk, which will help them prioritise investments and build resilience,” said Mr Carnegie-Brown. Professor Daniel Ralph, academic director of Cambridge Centre for Risk Studies, added: “One way of thinking about GDP@Risk is as the money a prudent city needs to put aside each year to cover the cost of risk events. The Lloyd’s City Risk Index helps governments, businesses and the insurance sector understand the economic implications of a variety of man-made and natural risks, and use the GDP@Risk metric to enhance their preparedness and resilience.”

Man-made risks outstrip nat cat as Lloyd’s research shows $546.5bn annual GDP under threat in leading cities

Want to read this article?

Read Next

Swedish risk managers told to focus on flexibility rather than resilience

European Parliament votes for ‘hard-fought compromise’ on CSDDD

Rates fall in most regions during Q1 but rise in Europe and US: Marsh

Major cyberattack would hike rates but insurers would ‘brush off’ losses: Lockton Re

Chubb says Q1 saw ‘best rates’ as it books $2bn profit

Swedish risk managers told to focus on flexibility rather than resilience

European Parliament votes for ‘hard-fought compromise’ on CSDDD

Rates fall in most regions during Q1 but rise in Europe and US: Marsh

Major cyberattack would hike rates but insurers would ‘brush off’ losses: Lockton Re

Chubb says Q1 saw ‘best rates’ as it books $2bn profit

Want to read this article?

Read Next

Swedish risk managers told to focus on flexibility rather than resilience

European Parliament votes for ‘hard-fought compromise’ on CSDDD

Rates fall in most regions during Q1 but rise in Europe and US: Marsh

Major cyberattack would hike rates but insurers would ‘brush off’ losses: Lockton Re

Chubb says Q1 saw ‘best rates’ as it books $2bn profit

Related Articles