About

Lloyd’s City Risk Index is based on original research produced for Lloyd’s by the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School. The innovative metric GDP@Risk was created as part of its research and allows a greater depth of data analysis than has been possible previously.

Methodology

To find out more about the methodology that underpins the Lloyd’s City Risk Index, click here.

How to use Lloyd's City Risk Index
Frequently asked questions

The data contained in this report will help policymakers, businesses and insurers make cities more resilient. Risk is managed most effectively by societies who anticipate and learn from each disruptive event, making the next generation safer. Citizens can also use this data to better understand the threats and impacts of disruptive events and pressure policymakers into building more resilient cities and communities.

This ground-breaking research quantifies the amount of economic output at risk in 279 cities, responsible for almost half (41%) of the world’s GDP, from 22 natural and man-made perils.

GDP@Risk is the average annual loss (also known as the ‘expected loss’) to a selected location’s economic output from each threat or threat category. Another way of thinking about GDP@Risk is the amount a city would have to save each year to pay for the costs of the disruptive events in the long run, averaged out over time.

For example: GDP@Risk is an ‘expected loss’ figure: i.e. the value of a possible loss multiplied by the probability of that loss occurring. e.g: if a moderate pandemic would cause New York to have a loss in economic output of $50bn, and there is a 10% probability that it could occur next year, then the expected loss for that scenario would be $5bn ($50bn * 10%).

A number of factors were taken into account:

  • The projection of the economic output of each city into the future.
  • The estimated economic output that would be lost if a catastrophe scenario struck. This is different for each city, and type and severity of threat scenario that could occur.
  • The likelihood of a threat scenario occurring – this varies depending on the threat type and city location. These catastrophic events are rare and the annual probability of them occurring in a particular city may be very low, sometimes less than a percentage point.
  • The severity and characteristics of each threat scenario. A number of different scenario severity levels are used to represent how the threat could impact the city, typically using threshold levels of low, moderate, and severe catastrophe. Each threshold level is used to assess the range of scenarios that could occur.
  • The resilience of each city

Total GDP@Risk is the expected loss to a selected city/country/region’s economic output from all 22 threats. Its calculation combines the likelihood of events occurring and their severity should they take place with the loss of GDP that would result.

This is the percentage of annual GDP@Risk in a city as a proportion of its projected annual GDP.

This is the amount of GDP that a city will lose if a specified threat scenario occurs. It is a one-off cost of a single event. The index shows two scenario loss numbers for each threat type. The lower number is the loss that would occur from a moderate-sized scenario of that threat type; the higher number is the loss if an extreme scenario took place. The number represents the amount of lost economic output from the city from these types of scenarios. If occupants of the city hold insurance that covers property damage and business interruption, then some of the economic losses would be compensated from claims payments on these policies.

The scenario cost is the one off-cost of a moderate-sized or extreme event taking place. The GDP@Risk number is the annual average of these events occurring over time. It is the expected loss of economic output at risk every year. Put another way the GDP@Risk is the amount a city could have to save (or pay in premiums) every year to pay for the one-off (scenario) costs of all the disruptive events it is likely to experience.

City resilience is assessed on a five-point scale with resilience categories of ‘very weak’, ‘weak’, ‘moderate’, ‘strong’ and ‘very strong’.

The effect of improved city resilience is only relevant for cities whose resilience is lower than ‘very strong’. Across those cities, $73.4bn amounts to an 16.5% reduction in in GDP@Risk, which is very significant[1]. Note that in this index, resilience is used to determine how quickly GDP recovers after the first year. Most losses are incurred in the first year.

[1] 16.5% (73.4bn reduction from 444bn GDP@Risk for cities with resilience lower than very strong)

Insurance has two roles. It provides funds immediately after a catastrophe to repair damaged property and it compensate for economic losses caused by business interruption, which speeds up the rate at which cities recover from disasters. It also acts as a spur to reduce the vulnerability of cities by encouraging people to invest in stronger buildings and carry out good risk management practices.

The index is not a prediction that these threats will occur. All these events are rare and the probability of them occurring in any given year may be low, sometimes less than a percentage point.

It is a list of the cities with the highest risk of reducing the global economy as a result of catastrophes. Major cities with the largest economies in hazardous locations feature highest on this list. The index does not indicate that one city is safer to live in than any other – it is not a list of the cities most at risk from damage to their buildings from catastrophes or the cities whose citizens are most at risk from personal injury from catastrophes.

Yes. For each threat, the cities are graded into categories of threat severity, ranging from high to low, based on their likelihood of experiencing severe threat events. The categorisation of threat severity is based on different indicators for each threat type. For example, a ‘high threat’ severity classification for power outage means that the city is highly prone to electrical outages and experiences more than 50 power cuts a year, whereas a ‘high threat’ severity for volcano threat means that the city is within 100km of an active volcano.

  • The 279 cities represent the world’s leading cities and were selected from the more than 5,000 cities in the world with populations over 250,000 because of their significance to global GDP. Together they generate 41% of global GDP.
  • The selection includes all cities of more than three million of population, the largest cities from the 50 largest national economies and includes half of all the national capital cities in the world. The largest economies have more cities represented.

The threats in the index were chosen from a review of the causes of catastrophic disruption of social and economic history for the past thousand years, and a wide-ranging review of potential causes in the future. The selection inevitably entails making choices and almost certainly omits some threats that could have an impact on GDP. See here for more details on choosing the risks.

The last data cut was taken in January 2018. This means that the index does not factor 2018 developments such as the latest peace progress in the Korean peninsula.

The index covers trends and an assessment of long-term risk. Individual events and new insights will continue to occur. Some of the catastrophes featured in the scenarios in the index are likely to occur from time to time. Others will fade from short-term likelihood.

Risk can be significantly reduced by improving all aspects of cities’ infrastructure and developing a robust economy, with insurance playing a key role in this process. The first step in any risk management process is to be fully aware of the risks that are faced. This index is an important contribution to identifying the major threats to the global economy.

Lloyd’s City Risk Index supports the case for more resilient infrastructure and institutions, and increased global access to insurance. Insurance claims pay-outs are a key source of capital injection after a catastrophe and insurance plays an important part in the recovery and reduction of impacts of catastrophes. Investment in risk management measures, including increasing insurance take up, could mitigate the economic losses associated with all threats – both man-made and natural.

This study can help businesses identify the key threats they face at home or globally, and inform contingency planning. Because these threats could impact on the economic output of a city, any company operating in these locations could be affected. By understanding the risks and implementing risk management procedures, companies can ensure they are prepared for the shocks to their businesses.

There are several products that could support cities/businesses following these threats. Examples include business interruption from property damage and for other coverages such as cyber attack; crop and agriculture insurance provides protection to producers in the case of drought; commercial and residential property insurance in the case of flood and earthquake; trade credit insurance in the case of commodity price shock.

Many of the threats in this index have far-reaching and complex consequences not all of which may be covered by the Lloyd’s market. The index is intended to start a discussion about where insurance products exist and where there are gaps in insurance cover, and what the next steps might be to innovate and develop new products.

If you quote any figures from the Lloyd’s City Risk Index, please reference the data in the following way:

Lloyd’s and Cambridge Centre for Risk Studies (2018). Lloyd’s City Risk Index 2018 [interactive website]. Available from lloyds.com/cityriskindex

What does the Lloyd’s market cover in relation to the threats in the index?

Note: all references to insurance include reinsurance and vice versa; cover may be specific or general; triggers may be parametric or ultimate net loss.

The Lloyd’s market offers cover for perils arising as a consequence of cyber attack. Examples of this include but are not limited to: cyber attack/cyber terrorism cover, which includes indemnification for third-party physical damage and business interruption loss, in addition to first and third-party cyber insurance (including cover for business interruption, crisis management, IT forensics, cyber extortion, digital asset restoration and privacy liability). Directors’ and officers’ (D&O) insurance products offer indemnification in the event of lawsuits brought about following a data breach.

The Lloyd’s market offers cover for perils arising as a consequence of drought. Examples of this include but are not limited to: re/insurance specifically relating to crop and agriculture, as well as property catastrophe re/insurance products, commercial and residential property, home and contents, professional indemnity, business interruption and contingent business interruption insurance. 

The Lloyd’s market offers cover for perils arising as a consequence of earthquake. Examples of this include but are not limited to:  re/insurance specifically linked to earthquake damage, as well as general property catastrophe products, commercial and residential property re/insurance, home and contents, workers’ compensation, business interruption and contingent business interruption,  event cancellation, travel, professional indemnity, public liability and workers’ compensation insurance among other casualty products.

The Lloyd’s market offers cover for perils arising as a consequence of flood. Examples of this include but are not limited to: re/insurance specifically linked to flood damage (which may include for example pluvial, fluvial and storm surge flooding), as well as general property catastrophe products, commercial and residential property re/insurance, home and contents, workers’ compensation, business interruption and contingent business interruption,  event cancellation, travel, professional indemnity, public liability and workers’ compensation insurance among other casualty products.

The Lloyd’s market offers cover for perils arising as a consequence of freeze. Examples of this include but are not limited to: re/insurance specifically linked to freeze, as well as general property catastrophe products, commercial and residential property re/insurance, home and contents, workers’ compensation, business interruption and contingent business interruption, event cancellation, travel, professional indemnity, public liability and workers’ compensation insurance among other casualty products. 

The Lloyd’s market offers cover for perils arising as a consequence of heatwave. Examples of this include but are not limited to: re/insurance specifically relating to crop and agriculture, as well as general property catastrophe products, commercial and residential property re/insurance, home and contents, workers’ compensation, business interruption and contingent business interruption, event cancellation, travel, professional indemnity, public liability and workers’ compensation insurance among other casualty products.

The Lloyd’s market offers cover for perils arising as a consequence of human pandemic. Examples of this include but are not limited to:  health insurance, travel insurance, workers’ compensation, employers’ liability, directors’ & officers’ liability, medical errors and omissions, medical malpractice, business interruption and contingent business interruption (specialty BI policies, e.g. hotel/hospitality BI, with pandemic-related triggers), event cancellation and contingency cover.

The Lloyd’s market offers cover for perils arising as a consequence of market crash. Examples of this include but are not limited to: credit, political risk, contract frustration, financial guarantee insurance, surety bond reinsurance, contingent business interruption, event cancellation and specialist contingency covers, construction delay-in-start-up, travel, directors’ and officers’, commercial crime insurance, errors and omissions and other specialist professional indemnity products.

The Lloyd’s market offers cover for perils arising as a consequence of nuclear accident in the following ways: energy onshore property, energy casualty, nuclear third-party liability, environmental liability, directors’ and officers’, professional indemnity, workers’ compensation, business interruption and contingent business interruption (including specialist covers triggered by nuclear exclusion zones)

The Lloyd’s market offers cover for perils arising as a consequence of commodity price shock. Examples of this include but are not limited to: credit, political risk, contract frustration, financial guarantee insurance, surety bond reinsurance, contingent business interruption, event cancellation and specialist contingency covers, construction delay-in-start-up, directors’ and officers’, commercial crime, errors and omissions and other specialist professional indemnity products, property covers including strikes, riots and civil commotion, marine and energy covers, and political violence insurance (coverage for rebellion, revolution, insurrection, civil war and war).

The Lloyd’s market offers cover for perils arising as a consequence of plant epidemic. Examples of this include but are not limited to: Product recall and contamination, business interruption and contingent business interruption (with disease trigger wordings), trade credit insurance, contract frustration and political risk.

The Lloyd’s market offers cover for perils arising as a consequence of power outage. Examples of this include but are not limited to: Commercial property, home and contents, perishable contents, product liability, professional indemnity (directors’ and officers’), workers’ compensation, physical and non-physical damage business interruption and contingent business interruption (critical vendor), event cancellation, environmental liability, political violence.

Lloyd’s can provide coverage for potential physical damage or business interruption as a consequence of social unrest/civil conflict/interstate conflict including malicious damage and/or riots depending on the particular state or country. Such coverage may fall within standard local property coverages or within broader political violence product offerings. Larger scale events may be considered also under potential war on land coverages. In some countries or states, local governmental schemes may already exist and respond in place of the need for specific insurance.

The Lloyd’s market offers cover for perils arising as a consequence of solar storm. Examples of this include but are not limited to: commercial property, event cancellation and contingency insurance, damage and non-damage business interruption and contingent business interruption, public liability, employers’ liability, directors’ and officers’ and other professional indemnity products.

The Lloyd’s market offers cover for perils arising as a consequence of sovereign default. Examples of this include but are not limited to: credit, political risk, contract frustration, financial guarantee insurance, surety bond reinsurance, contingent business interruption, event cancellation and specialist contingency covers, directors’ and officers’, commercial crime, errors and omissions and other specialist professional indemnity products, property covers including strikes, riots and civil commotion, marine and energy covers, and political violence insurance (coverage for rebellion, revolution, insurrection, civil war and war). 

The Lloyd’s market offers cover for perils arising as a consequence of terrorism. Examples of this include but are not limited to: terrorism reinsurance, political violence, cyber attack, health insurance, workers’ compensation and other commercial casualty covers, kidnap & ransom, contingency products, travel insurance, business interruption and contingent business interruption (both damage and non-damage).

The Lloyd’s market offers cover for perils arising as a consequence of wind storm. Examples of this include but are not limited to: re/insurance specifically linked to wind storm, as well as general property catastrophe products, commercial and residential property re/insurance, home and contents, workers’ compensation, business interruption and contingent business interruption, event cancellation, travel, marine and energy, yacht, cargo, professional indemnity, public liability and workers’ compensation insurance among other casualty products.

The Lloyd’s market offers cover for perils arising as a consequence of tsunami risk. Examples of this include but are not limited to: re/insurance specifically linked to tsunami, as well as general property catastrophe products, commercial and residential property re/insurance, home and contents, workers’ compensation, business interruption and contingent business interruption, event cancellation, travel, marine and energy, yacht, cargo, professional indemnity, public liability and workers’ compensation insurance among other casualty products.

The Lloyd’s market offers cover for perils arising as a consequence of volcanic activity. Examples of this include but are not limited to: re/insurance specifically linked to volcanic activity, as well as general property catastrophe products, commercial and residential property re/insurance, home and contents, workers’ compensation, business interruption and contingent business interruption, event cancellation, travel, marine and energy, yacht, cargo, professional indemnity, public liability and workers’ compensation insurance among other casualty products.

Disclaimer

Lloyd’s City Risk Index is a product of a research collaboration between Lloyd’s and the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School.

This Index has been produced by, and/or on behalf of, Lloyd’s for general information purposes only. While care has been taken in gathering the data and preparing the Index, Lloyd’s does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those that might otherwise be implied.

Lloyd’s accepts no responsibility or liability for any loss or damage of any nature occasioned to any person as a result of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expression of opinion or belief contained in this Index. This Index does not constitute advice of any kind.

© Lloyd’s 2018. All rights reserved.