The index reveals that 279 cities across the world - the key engines of global economic growth with a combined gross domestic product (GDP) of USD 35.4 trillion - risk losing on average USD 546.5 billion in economic output annually (GDP@Risk) from all 22 threats. This comprises USD 320.1 billion to man-made risks and USD 226.4 billion 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 USD 103.3 billion 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 USD 80.0 billion in GDP@Risk.
- Climate change is still a major risk driver: Climate-related risks together account for USD 123.0 billion 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 USD 66.3 billion of GDP@Risk and flood that puts a further USD 42.9 billion 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 USD 126.8 billion 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 USD 73.4 billion.
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 USD 2.7 billion 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 USD 380.4 billion 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 prioritize investments and build resilience.
"The index shows that investing in resilience - from physical flood defenses 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 and resilience.
"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 global level."
Europe - a divergent landscape (excerpt from the European section of the study)
The index analyses 66 European cities - from Dublin on the Irish Sea to Novosibirsk in Siberia. How do they compare with other cities across the globe? European cities account for just 13% of the global GDP@Risk total, in part due to their stronger resilience levels. However, the continent still stands to lose a substantial amount - USD 70.33 billion each year - to risk. London, Moscow, Paris and Madrid combined account for USD 24.63 billion - more than a third of Europe's expected loss. However, the risk profiles of London and Paris are markedly different to those of Moscow, reflecting a sharp divergence between the risks affecting western and eastern European economies.
Eastern Europe faces financial risks: The index analyses 26 cities in the east of Europe that together face an expected loss of USD 15.85 billion. The five costliest individual risks are: market crash (USD 6.13 billion); civil conflict (USD 2.05 billion); sovereign default (USD 1.54 billion); human pandemic (USD 1.29 billion) and interstate conflict (USD 877m). Eastern European cities are, in general, more exposed to geopolitical and security risks and less exposed to market crash and cyber-crime, compared with Western Europe.
Western Europe faces finance and cyber threats: The 40 cities in the west of Europe have an expected loss to GDP of USD 54.48 billion. The types of threats they face differ from the east in a number of critical ways Their key risks are market crash (USD 17.38 billion); cyber-attack (USD 8.67 billion); flood (USD 8.54 billion); human pandemic (USD 5.56 billion) and commodity price shock (USD 4.40 billion). This reflects the region's emphasis on trade rather than resources, which means it suffers more financially when oil prices rise.
Overall, Europe faces 11 risks with an annual expected loss of more than USD 1 billion. Climate risks account for USD 12.17 billion, so the prospect of more extreme weather events caused by climate change needs to be carefully managed by European countries. The index shows that flood will cost the European economy an expected USD 9.28 billion each year - the most significant natural disaster, in terms of damage to the economy's output.
However, because of Europe's role as a powerhouse of global trade, it is man-made risk which stands to have the greatest impact on the GDP of European cities. Man-made threats account for 67 per cent of the total risk to the GDP of European cities. The highly developed nature of the European economy means that business risks - cyber-attack and market crash, for example - have a strong impact on GDP. Market crash, with a cost to GDP of USD 23.51 billion each year is the largest risk across the continent, accounting for a third of Europe's total loss to GDP. European businesses would be well advised to maintain robust risk strategies for market volatility, due to their high exposure to this risk.
Click here to find the Lloyd's City Risk Index results
Click here to get the European section of the report