The first-ever Lloyd’s City Risk Index, which analyzes the economic output at risk (GDP at risk) in 301 major cities from 18 manmade and natural threats over a 10-year period, concludes that a total of $4.6 trillion of projected GDP is at risk from disasters in these cities around the world.
The Index is based on original research by the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School.
Lloyd’s said it “produced this index to help increase the understanding of the shifting risk landscape and hopes to stimulate “further discussions between insurers, governments and businesses on the need to improve resilience, mitigate risk and protect infrastructure.”
Globally, the index identifies 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. Manmade 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.
The findings reinforce the growing recognition that governments and businesses must “work together to build more resilient infrastructure and institutions,” according to Lloyd’s.
It maintains that how quickly a city recovers after a catastrophe is a key component of the total risk, and the impact can be mitigated by rapid access to capital to help restore the economy.
“Governments and businesses, together with insurers, must work together to ensure that this exposure – and the potential for losses – is reduced,” Lloyd’s CEO Inga Beale said. “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.”
According to Professor Daniel Ralph, academic director of Cambridge Centre for Risk Studies, this analysis is the result of six years of research into catastrophic shocks on complex systems.
Source: Lloyd’s of London
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