Lloyd’s City Risk Index Identifies Cities Top Threats
IN SEPTEMBER 2015, LLOYD’S LAUNCHED ITS GROUND-BREAKING STUDY, THE LLOYD’S CITY RISK INDEX. THE LLOYD’S CITY RISK INDEX PRESENTS THE FIRST EVER ANALYSIS OF ECONOMIC OUTPUT AT RISK (GDP AT RISK) IN 301 MAJOR CITIES FROM 18 MANMADE 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 finds that a total of $4.6 trillion of projected GDP is at risk from manmade and natural disasters in these cities around the world. Lloyd’s has produced this Index to help increase the understanding of, and shape the world’s response to, the shifting risk landscape. The Index is aimed at stimulating further discussions between insurers, governments and businesses on the need to improve resilience, mitigate risk and protect infrastructure. The Index shows natural catastrophes still present the greatest threat to the economic growth of cities in Asia Pacific, but manmade threats are increasingly significant, accounting for 34% of GDP exposures. The study found that cities across Asia Pacific have a potential $2.1 trillion GDP@Risk over the next 10 years – accounting for almost half (47%) of the total global GDP@Risk.
The study found that cities across Asia Pacific have a potential $2.1 trillion GDP@Risk over the next 10 years – accounting for almost half (47%) of the
total global GDP@Risk.
Kuala Lumpur will produce an average GDP of $38.94 billion over the next ten years with a total $4.57 billion at risk. In summary, the top threats for 102 cities in Asia Pacific are:
1. Wind storm - $530.5 billion
2. Market crash - $354.7 billion
3. Human pandemic - $296.47 billion
4. Flood - $201.8 billion
5. Earthquake – $178.78 billion
THE UNDERINSURANCE THREAT
Asia is more vulnerable to natural catastrophes than any other part of the world and yet, there is significant underinsurance in the region. In 2013, non-life penetration rates for India (0.6 per cent), China (1.1 per cent), Vietnam (0.7 per cent) and Indonesia (0.4 per cent) were below the 1.4 per cent Asia Pacific average and well behind developed markets in this region such as Australia, New Zealand and South Korea. This is significantly lower than the global average of 6.1 per cent. However, over the past 20 years, Asia has borne almost half of the estimated global economic cost of natural catastrophes – around $53 billion each year according to the Asian Development Bank. Lloyd’s can play a vital role in closing the protection gap, removing the burden from the government and taxpayer, and helping safeguard economic prosperity. In fact, Lloyd’s research showed that a 1 per cent rise in insurance penetration translates into a 13 per cent reduction in uninsured losses and a 22 per cent reduction in the taxpayers’ contribution following a disaster. 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 – cyberattack, human pandemic, plant epidemic and solar storm – representing more than a fifth of the total GDP at risk. The findings show 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. Kent Chaplin, Lloyd’s Head of Asia Pacific said: “Lloyd’s has enjoyed a long history of providing specialist coverage for complex risks in Malaysia. As the economy expands and new risks emerge, Lloyd’s is looking to develop innovative solutions which meet the changing needs of business. “We are also sharing our expertise and insights with wider body of stakeholders to help build greater resilience. In principle, about half of total GDP at risk can be protected by improving aspects of cities’ infrastructure and crisis management, with insurance playing a key role in this process.”