Lloyd’s, the world’s leading specialist insurance and reinsurance market, today announced a new report: Cities at risk – Building a resilient future for the world’s urban centres, published in association with Urban Foresight and Newcastle University.
Using four global trends, the report analyses the risks affecting cities now, and in the future, and how these threats will affect urban areas.
Based on the framework used by the Cambridge Centre for Risk Studies, this report identifies four main categories of threats facing cities. These risks interact with one another and have the potential to adverselyimpact multiple critical elements of a city’s operations,affecting inhabitants and the economy.
These four categories of threats are:
Geopolitics and society: Global geopolitical tensions have increased recently, and the current political climate is one of significant tension in some areas. This has created uncertainty and drained confidence, and thus deterred long-term investment. The risk of resource scarcity, social unrest, pollution, pandemics and terrorism is more acute.
Natural catastrophe and climate. Cities are dealing with the pressures of climate change. Concentrations of urban populations make cities and their residents more vulnerable to extreme weather events.
Technology and space: Urban areas are becoming more interconnected and rely on smart technologies,which generate a vast amount of critical data. The scale and complexity of cities mean that catastrophic scenarios such as space weather that knock out satellite communications, cause power outage or disrupt information flows could threaten essential infrastructure on which cities rely.
Finance, economics and trade. Cities stand to lose the most GDP to financial risk, including market crash,commodity price shock and sovereign default according to Lloyd’s City Risk Index. Economic development could become an onerous challenge for local authorities.
The study found the insurance industry and cities need to develop stronger and more effective working partnerships. Based on the research carried out for this report, the following hurdles need to be overcome before this can happen: To realise this commercial opportunity insurers and city officials should:
Share data and analytics. As data becomes more ubiquitous and cities collect more of it,they need to harness the power of this data to develop the risk retention and risk transfer strategies that are right for them. Using data and analytics could help cities to identify,assess and quantify threats (insurable or not),and the short-term economic impacts, as well as inform longer-term strategic objectives. By sharing data and risk insights, cities could forge deeper, more transparent, more beneficial relationships with insurance markets.
– Improve cross-sector/industry learning: The public sector could learn from the private sector, with insurers sharing their expertise and experience.
– Improve risk preparation and-mitigation measures. As cities’ risk approach matures their focus could include better risk management and mitigation. Better understanding of losses would also help in this regard.
– Meet customers’ needs. Insurers and brokers should engage more with customers to understand better what they are looking for Interacting more with insureds will help them adapt and improve their products Increase understanding of risk. Governments,insurers and other stakeholders should work together to ensure there is a greater understanding of the economic and social consequences of poor risk management, and facilitate the development of appropriate risk transfer solutions.
The report presents seven case studies: London, New York City, Miami, Mexico City, Johannesburg, Riyadh and Shanghai.
Trevor Maynard, Lloyd’s Head of Innovation, said: “Lloyd’s can work with cities to help them understand their risks and exposures, and the insurance industry plays a big role in helping mitigate these risks and improve their resilience. The Lloyd’s market already has a lot of products meeting the needs of municipalities around the world and we are working on products that target policyholders’ future needs. Nevertheless, there is still a long way to go to develop further interactions between cities and insurers in order to increase collaboration and understanding.”
Graham Thrower, Head of Infrastructure & Investment, Urban Foresight, said: "The commissioning of this report was prescient. As cities continue to evolve, their shape and functional performance is being questioned like never before. Recent events have highlighted the importance of our great cities as concentrations of economic, political and social activity. They are also environments in which risks concentrate.
The report shows that more than half the world’s population now lives in urban areas, up from a third in 1950, and this is projected to reach two-thirds by 2050 . As a result, cities are the engines of the global economy. Large cities now account for around 75% of GDP worldwide, forecast to rise to more than 85% by 2030 (McKinsey Global Institute, 2016). These two trends are concentrating populations and economic assets, increasing the impacts and potential losses from disasters.
While urbanisation has occurred on an uneven basis every region of the world has seen an increase in urban populations over the last decades.The UN population index predicts that the global population will swell to 11 billion by the end of this century .
Today, the most urbanised regions include Northern America (with 82% of its population living in urban areas in 2018), Latin America and the Caribbean (81%), Europe (74%) and Oceania (68%) .At least half a billion more people will live in cities in 2025 compared to 2019. Africa and Asia will be home to 86% of new urban citizens.