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Man-made risks forecast to cost world’s cities $320 billion each year

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Staff Writer | June 12, 2018
Man-made risks like cyber-crime, interstate conflicts or market crashes are a bigger threat to economic output than natural disasters, 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.
Market crash
World   279 cities across the world risk losing on average $546.5bn
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.

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 – totalling $80.0bn in GDP@Risk.

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 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.

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.