Man-made risks forecast to cost
world’s cities $320B / Year
June 6, 2018
risks like cyber-crime, interstate conflicts or 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 (GDP@Risk) 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 GDP@Risk. 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 – totaling $80.0bn in
■Climate change is still a major
risk driver: Climate-related risks together account for $123.0bn of
GDP@Risk, 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 GDP@Risk 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 GDP@Risk
together face $126.8bn in potential losses to economic output each year.
This is almost a quarter of total GDP@Risk and more than the amount of
GDP@Risk 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 GDP@Risk 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 – GDP@Risk.
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 GDP@Risk. 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
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 GDP@Risk 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 GDP@Risk metric to enhance their preparedness
“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