A new study, the Lloyd's City Risk Index, presents an analysis of economic output at risk (GDP at risk) in 301 major cities from 18 man-made and natural threats over a 10-year period.
Based on original research by the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School, the index found that a total of $4.6 trillion of projected GDP is at risk from man-made and natural disasters in these cities around the world.
Lloyd's said that it produced the index to help increase the understanding of, and shape the world's response to, the shifting risk landscape. According to Lloyd's, the index was aimed at stimulating further discussions between insurers, governments, and businesses on the need to improve resilience, mitigate risk, and protect infrastructure.
Globally, the index identified three important emerging trends in the global risk landscape:
1. Emerging economies will shoulder two-thirds of risk related financial losses as a result of their accelerating economic growth, with their cities often highly exposed to single natural catastrophes.
2. Man-made risks such as market crash, power outages, and nuclear accidents are becoming increasingly significant, associated with almost half the total GDP at risk. A market crash is the greatest economic vulnerability – representing nearly a quarter of all cities' potential losses.
3. New or emerging risks, such as cyber attack, are also increasingly significant. Together, they account for more than a third of the total GDP at risk with just four – cyber attack, human pandemic, plant epidemic, and solar storm – representing more than a fifth of the total GDP at risk.
According to Lloyd's, the findings showed the need for governments and businesses to work together to build more resilient infrastructure and institutions. How quickly a city recovers after a catastrophe is a key component of the total risk, and the impact of events is mitigated by rapid access to capital to help restore the economy.
Inga Beale, the chief executive officer of Lloyd's said, “Lloyd's City Risk Index highlights the economic exposure of 301 major cities across the world. Governments and businesses, together with insurers, must work together to ensure that this exposure – and the potential for losses – is reduced.
“Insurers, governments, businesses, and communities need to think about how they can improve the resilience of infrastructure and institutions. Insurance is part of the solution.
“Insurers must continue to innovate, ensure their products are relevant in this rapidly changing risk landscape, offer customers the protection they need, and, as a result, contribute to a more resilient international community.”
Professor Daniel Ralph, the academic director of Cambridge Centre for Risk Studies, said, “This analysis for the Lloyd's City Risk Index is the result of six years of research into catastrophic shocks on complex systems carried out at the Cambridge Centre for Risk Studies. It combines a detailed understanding of 18 different economic threats to the world's most important cities. The measure GDP@Risk makes it possible to combine and compare a very wide range of threats, including those that are disruptive and costly, such as market collapse, in addition to destructive and deadly natural catastrophes.”