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Man-made disasters pose $320B GDP risk to world's biggest cities, Lloyd's says

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Man-made disasters pose $320B GDP risk to world's biggest cities, Lloyd's says

Man-made risks such as cybercrime, conflict and financial market crashes are putting $320.1 billion of global GDP at risk each year, eclipsing the $226.4 billion potential hit to economic output from natural catastrophes, Lloyd's of London has estimated.

The Lloyd's City Risk Index, produced with Cambridge University, measures the effect of 22 threats on the economic output of 279 cities across the world, representing 41% of global GDP. It found that of the cities' combined GDP of $35.4 trillion, $546.5 billion was at risk from the 22 threats, split into $320.1 billion for man-made threats and $226.4 billion for natural catastrophes.

The GDP at risk figure in the report, which Lloyd's refers to as GDP@Risk, is a projection based on the likelihood of the loss of economic output from the threat. The study takes into account the resilience levels of each city, including governance and access to capital.

Biggest threats

The biggest threat, according to the study, is a financial market crash, with a potential annual hit to GDP of $103.33 billion. Another man-made risk, interstate conflict, was in second place with an $80 billion threat to GDP, while tropical windstorms ranked third, putting $66.3 billion of GDP at risk. Cyber attacks were in seventh place with a potential annual hit to GDP of $36.54 billion across the 279 cities. Tsunamis pose the least risk to GDP of the 22 threats, the study found, with a potential annual hit of $980 million.

The region most at risk, the study said, is Asia, which could lose $241.28 billion of GDP — 44% of the total $546.5 billion GDP at risk. Tropical windstorm is Asia's single costliest risk at $60 billion.

"Asia's prominence in the index reflects the emergence of several of its cities as economic powerhouses," the report said. "This, allied to their exposure to natural threats, which accounts for more than half of their total GDP@Risk, means this region stands to lose more than others."

The Middle East and Africa is the second most at-risk region, with a GDP at risk of $97 billion, which the Lloyd's study said was because many of the region's cities included in the study are exposed to conflict risks. North America was close behind the Middle East and Africa with $92.96 billion of GDP at risk.

The most at-risk city, according to the index, is Tokyo, which could lose $24.31 billion of its GDP to the 22 threats. New York was second with $14.83 billion at risk, and Manila third with $13.27 billion. The top 10, which include five Asian cities, represent $126.82 billion of GDP at risk.

Lloyd's noted that actual losses could far exceed the GDP at risk annual average loss estimate. For example, the GDP at risk figure for earthquake damage in Los Angeles is $2.7 billion, although the study found that an exceptionally severe quake could cost the city as much as $380.4 billion of GDP.

Insurance implications

Lloyd's said insurance is "part of the solution" to the risks facing global cities, as it can provide a cash injection following a catastrophic event. But it added that its research on underinsurance has shown that many of the world's most vulnerable countries have low insurance premium-to-GDP ratios.

The report urged insurers and brokers to invest in developing new products, particularly for man-made risks, which it said are "difficult to quantify in terms of both probability and scale." But it also said insurance was only one way to strengthen a city's defenses and that "active risk management" can reduce the GDP hit.