September 3, 2015 by Canadian Underwriter
A total of US$4.6 trillion of projected GDP is at risk from 18 manmade and natural disasters in 301 cities across the world over a ten-year period, according to a new study published on Thursday by Lloyd’s, the specialist insurance and reinsurance market.
Based on original research by the Cambridge Centre for Risk Studies at the University of Cambridge, the Lloyd’s City Risk Index 2015-2025 presents the “first ever analysis of economic output at risk” from the disasters in 301 major cities across the globe, Lloyd’s said in a statement. The report takes the first five years of lost economic output as the standard measure of GDP at risk from an event. [click image below to enlarge]
According to the Risk Index, Toronto tops the city rankings in Canada at US$15.76 billion of GDP at risk. Montreal is second at US$9.51 billion, followed by Vancouver (US$6.15 billion), Calgary (US$5.82 billion), Edmonton (US$5.47 billion) and Ottawa (US$2.07). For Toronto, a market crash is the greatest threat at US$6.29 billion of GDP at risk, followed by cyberattack (US$3.52 billion). Similarly for Montreal, a market crash is the biggest risk at US$3.56 billion of GDP at risk, followed by cyberattack at US$1.99 billion.
“These likelihoods vary from city to city depending on their locations and risk characteristics, but all of these events are rare and the probability of a city being impacted by any particular event scenario in the ten year period may be only a few percent,” the report noted.
The Risk Index pointed out that just 10 threats account for 91% of the total GDP at risk. Nearly half of the total risk is linked to manmade threats, including market crash, cyberattack, power outage and nuclear accidents. [click image below to enlarge]
Globally, the Risk Index identifies three important emerging trends in the global risk landscape:
• 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. For example, earthquake risk alone represents more than half of the total GDP at risk in both Lima and Tehran;
• A market crash is the greatest economic vulnerability – representing nearly a quarter of all cities’ potential losses; and
• New or emerging risks, such as cyberattack, 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.
“Governments and businesses, together with insurers, must work together to ensure that this exposure – and the potential for losses – is reduced,” said Inga Beale, CEO of Lloyd’s, in the statement. “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.”
Beale added that 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 the report, a 1% rise in insurance penetration translates into a 13% reduction in uninsured losses – a 22% reduction in taxpayers’ contribution following a disaster.