Lloyd’s City Risk In­dex Iden­ti­fies Cities Top Threats

Insurance - - FEATURE - Text Michelle Cock­rill | Lloyd Asia Pa­cific

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.”

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