Man-made risks forecast to cost world’s cities $320bn each year on average

London, UK (June 6, 2018) – Man-made risks including cyber-crime, interstate conflicts and market crashes are a bigger threat to economic output than natural disasters such as hurricanes, floods, earthquakes and volcanoes, putting an estimated $320.1 billion of global GDP at risk on average each year, according to Lloyd’s, the world’s specialist insurance and reinsurance market.

The Lloyd’s City Risk Index, built in collaboration with Cambridge University, is a unique study measuring the impact of 22 threats on 279 cities’ projected economic output.

The index reveals that 279 cities across the world – the key engines of global economic growth with a combined gross domestic product (GDP) of $35.4 trillion – risk losing on average $546.5bn in economic output annually ([email protected]) from all 22 threats. This comprises $320.1bn to man-made risks and $226.4bn to natural catastrophes.

The key trends identified by the index are:

  • Man-made threats are on the rise: Man-made threats account for 59% of all global [email protected]. Financial market crash is identified as the biggest threat to the global economy, putting on average $103.3bn in global economic output at risk per year. Reflecting the rising level of geopolitical instability around the world, the study indicates that interstate conflict is the second costliest peril – totalling $80.0bn in [email protected].
  • Climate change is still a major risk driver: Climate-related risks together account for $123.0bn of [email protected], and this sum is expected to grow as extreme weather events become increasingly frequent and severe. The costliest climate events are windstorms which account for $66.3bn of [email protected] and flood that puts a further $42.9bn of economic output at risk.
  • The majority of risk is concentrated in a few cities: The 10 cities with the highest [email protected] together face $126.8bn in potential losses to economic output each year. This is almost a quarter of total [email protected] and more than the amount of [email protected] in Africa, the Middle East and Latin America combined. This finding reflects the increasing concentration of wealth in certain geographic regions and, therefore, the vulnerability of the global economy to disruptive events.
  • Building resilience is an urgent priority: The index scores each city’s resilience based on criteria such as funding for emergency services and insurance levels. If every city in the index were to improve its resilience to the highest level then global [email protected] would decrease by as much as $73.4bn.

Extreme events are rare but costly when they do take place. To reflect this fact, the index averages out these large losses to produce an annual average loss estimate – [email protected].

However, the actual losses from an extreme event in any given year could be much higher than this. An illustration is provided by Los Angeles where, according to the index, the average annual loss estimate for an earthquake is $2.7bn [email protected]. However, according to the index, in an extreme scenario an earthquake in Los Angeles could cause the city to lose as much as $380.4bn of GDP.

Lloyd’s Chairman, Bruce Carnegie-Brown, said:
“No city will ever be completely risk free. Disruptions will always occur, whether it is the result of a hurricane or a cyber-attack. 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.

“The index shows that investing in resilience – from physical flood defences to digital firewalls and enhanced cyber security, combined with insurance – will help significantly reduce the impact of extreme events on cities, improve economic stability and enhance prosperity for all. I urge insurers, governments and businesses to look at the index, and work together to reduce these exposures by building more resilient infrastructure and institutions.”

Professor Daniel Ralph, Academic Director of Cambridge Centre for Risk Studies, at the University of Cambridge Judge Business School, added:
“One way of thinking about [email protected] is as the money a prudent city needs to put aside each year to cover the cost of risk events. 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 [email protected] metric to enhance their preparedness and resilience.

“One of the most prominent features of the index is the worldwide rise in geopolitical risk, driven in large part by the threat of interstate conflict and civil unrest. We are likely to see this trend continue on a global level.”

About Lloyd’s

Lloyd’s is the world’s specialist insurance and reinsurance market. With expertise earned over centuries, Lloyd’s is the foundation of the insurance industry and the future of it. Led by expert underwriters and brokers in more than 200 territories, the Lloyd’s market develops the essential, complex and critical insurance needed to underwrite human progress. Backed by diverse global capital and excellent financial ratings, Lloyd’s works with a global network of over 4,000 insurance professionals to grow the insured world – building resilience for businesses and local communities, and strengthening economic growth around the world.

About Cambridge Centre for Risk Studies

Cambridge Centre for Risk Studies is a multidisciplinary centre of excellence for the study of the management of economic and societal risks, and is an independent research centre at the University of Cambridge Judge Business School. The Centre’s focus on the analysis, assessment and mitigation of global vulnerabilities for the advancement of business risk managers, individual decision-makers and policy strategists. The research programme pursued by the Centre explores catastrophic systemic risk and interconnectivity in the economy. The Centre is supported by the business community as well as the academic research councils and focuses on research that is highly application-oriented.

Source: Lloyd’s

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