News Risk Management13 Jun 2018

Asia makes up half of world's top 10 cities at risk, with Tokyo at no. 1--Lloyd's

13 Jun 2018

Asia accounts for half of the top 10 cities at risk in the world, with Tokyo taking top spot as the city facing the greatest risks in the world, according to the recently released Lloyd's City Risk Index (CRI).

The other Asian cities in the top 10 are Manila (#3), Taipei (#4), Osaka (#6) and Shanghai (#8).

The latest edition of the (re)insurance market’s CRI, which measures some 279 cities’ economic output at risk (‘GDP@Risk’) from 22 separate threats, found that while Nat CATs remain Asia Pacific’s largest source of risk, man-made threats such as market crashes, interstate conflict and cyber-crime now threaten almost half (46%) of APAC cities’ GDP@Risk.

Global (segmented into APAC, Europe, Latin America, Middle East and Africa and North America) GDP@Risk is $546.5bn, with APAC’s $241.3bn making up the lion’s share at 44%.

Financial market share largest risk

Globally, a financial market crash is ranked as the largest risk and could reduce economic output in the world’s biggest cities by $103.3bn – with almost a third of this ($34bn) from APAC, according to the study.

Meanwhile, reflecting the rising level of geopolitical instability around the world and tensions in the Korean peninsula and South China Sea, the study reveals that globally, interstate conflict weighs in as the second costliest peril at $80bn, with $32.4bn (40%) coming from APAC cities.

Tropical windstorm risk is ranked third at $62.6bn and 94% of this ($59.1bn) is from APAC – reflecting the region’s extensive Nat CAT exposure.

Tokyo at no. 1

Tokyo, ranking no. 1 on the CRI with $24.31bn GDP@Risk, is top of the index’s global rankings in three risks (interstate conflict, tsunami and volcano) compared to New York, which ranks no. 2 just behind Tokyo on the CRI and is top in 11.

However, Tokyo is exposed to threats which have the most impact on GDP - market crash ($1.82bn), for example. Due to its location close to the fluctuating political situation in the Korean peninsula, interstate conflict is the costliest threat to GDP in the index for Tokyo, with a potential annual cost of $8.98bn. The city is also vulnerable to earthquake ($1.89bn), proximity of the sea, tsunami ($389m), tropical windstorm ($3.35bn) and flood ($1.94bn).

Lloyd’s noted, however, that Tokyo has had a history of learning from disaster and has invested in measures to mitigate the impact of these threats, and has the index’s highest resilience rating of “very strong”. It highlighted that Japan is underinsured. For example, only $35bn of the estimated $210bn of total economic losses following the March 2011 Tohoku earthquake and tsunami was insured

Lloyd’s Asia Pacific interim CEO Iain Ferguson said, ““The growth we are witnessing in Asia Pacific brings with it an increasingly complex risk landscape. Almost half of the measured global economic output at risk comes from the region, yet resilience is lacking. This is particularly evident in fast-growing emerging economies.

“While Asia Pacific has always been more prone to natural catastrophes, it is surprising to see the rising impact of man-made risks in the region. We expect this trend to continue growing as market and cyber-security threats increase. We hope the index will offer policymakers, businesses and societies a useful guide for understanding the financial impact of risk in their cities, as well as contribute towards their building of resilience.”

The key trends identified by the report are:

• Exposures are highest in a small number of cities: The ten cities with the highest exposure to risk could together lose $126.8bn each year, almost a quarter of all GDP@Risk, a finding that reflects the increasing concentration of wealth in certain geographic regions. APAC accounts for half of the cities in the top 10 cities at risk, and three of the top five (#1 Tokyo, #3 Manila and #4 Taipei).

• Climate change is a major risk driver: 54% of APAC’s exposure comes from Nat CATs. Tropical windstorms, with a total estimated loss of $59.1bn each year, are the largest threat to the GDP of APAC cities. This sum is expected to grow as extreme weather events become increasingly frequent and severe.

• Building resilience is an urgent priority: The index also scores each city’s resilience based on criteria such as funding for emergency services and insurance levels. Of the 92 cities the index analyses in APAC, 16 are categorised as having very strong levels of resilience. This includes all Japanese, South Korean and New Zealand cities. However, 19 cities receive the lowest level of very weak. This includes all Indian and Pakistani cities. If all APAC cities included in the index were to achieve the highest resilience rating of very strong, then the GDP@Risk in the APAC region would decrease by $34bn.

The 279 cities for the CRI were chosen as they are the key engines of global economic growth, with an estimated combined economic output of $35.4tn (equivalent to 41% of global GDP). The CRI was developed in collaboration with the Cambridge Centre for Risk Studies. For more information, refer to the CRI website.

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