The Middle East's 16 largest centres of economic growth could have $367 billion of gross domestic product at risk from a series of threats over the next decade, according to new research for Lloyd's, the specialist insurance market.

 

A new study - the ‘Lloyd's City Risk Index’ - presents the first ever analysis of economic output at risk (GDP@Risk) in 301 major cities from 18 manmade and natural threats over a 10-year period.

 

Based on original research by the Cambridge Centre for Risk Studies at the University of Cambridge Judge Business School, the Index finds that a total of $4.6 trillion of projected GDP is at risk from manmade and natural disasters in these cities around the world.

 

Lloyd's has produced this Index to help increase the understanding of, and shape the world's response to, the shifting risk landscape. 

 

The Index, which will be updated every two years, is aimed at stimulating further discussions between insurers, governments and businesses on the need to improve resilience, mitigate risk and protect infrastructure.

 

In the Middle East, the Index found the cities of Abu Dhabi, Ahvaz, Amman, Baghdad, Beirut, Damascus, Doha, Dubai, Esfahan, Jeddah, Jerusalem, Karaj, Kermanshah, Kuwait City, Mashhad, Riyadh, Sana'a, Shiraz, Tabriz, Tehran, and Qom together will generate an average annual GDP of $2.4 trillion in the coming decade. 

 

However, about 15 per cent of this economic growth is at risk from the combination of 18 manmade and natural threats.

 

Across the region, the largest GDP exposures are to market crash at $143.3 billion, earthquake at $85.17 billion, human pandemic at $41.40 billion, sovereign default at $30.16 billion, and terrorism at $25.68 billion.

 

Tehran has the most GDP at risk with $64 billion exposed, more than half of this ($34.5 billion) is from earthquake as the city lies on several major fault lines. It has the second largest amount of GDP at risk from earthquake behind Lima.

 

Riyadh has the most GDP at risk from human pandemic in the region at $5.16 billion reflecting the flow of almost two million pilgrims who make Haj each year.

 

In the financial trading hubs of Dubai and Abu Dhabi, market crash is the greatest exposure accounting for almost half of the GDP at risk.

 

Globally, the Index identifies three important emerging trends in the global risk landscape:

 

Emerging economies will shoulder two-thirds of risk related financial losses as a result of their accelerating economic growth, with their cities often highly exposed to single natural catastrophes.

 

Manmade risks such as market crash, power outages and nuclear accidents are becoming increasingly significant, associated with almost half the total GDP@Risk. A market crash is the greatest economic vulnerability - representing nearly a quarter of all cities' potential losses.

 

New or emerging risks, such as cyber-attack, are also increasingly significant. Together, they account for more than a third of the total GDP@Risk with just four - cyber-attack, human pandemic, plant epidemic and solar storm - representing more than a fifth of the total GDP@Risk.

 

The findings show the need for governments and businesses to work together to build more resilient infrastructure and institutions. How quickly a city recovers after a catastrophe is a key component of the total risk, and the impact of events is mitigated by rapid access to capital to help restore the economy.

 

Inga Beale, chief executive officer, Lloyd’s, said: "Lloyd's City Risk Index highlights the economic exposure of 301 major cities across the world. Governments and businesses, together with insurers, must work together to ensure that this exposure - and the potential for losses - is reduced.

 

"Insurers, governments, businesses and communities need to think about how they can improve the resilience of infrastructure and institutions. Insurance is part of the solution.

 

"Insurers must continue to innovate; ensure their products are relevant in this rapidly changing risk landscape, offer customers the protection they need and, as a result, contribute to a more resilient international community."

 

Mark Cooper, Lloyd's Middle East general representative, said: "Lloyd's City Risk Index highlights the economic exposure of the major cities in the Middle East and the significant levels of GDP at risk from both manmade and natural threats.

 

"We are all too familiar with some of the natural threats and have robust contingency plans in place; however, we should be increasingly aware of a number of manmade and emerging threats highlighted in the report and the importance of risk management to mitigate the potential economic impact. The study shows that a market crash is the greatest economic vulnerability and this is also true in the Middle East, where $143 billion could be at stake.

 

"While insurance is part of the solution to improve resilience to these threats; and the industry continues to innovate with specialist (re)insurance coverage; government, business and communities must work together to create a more resilient response to a major event." - TradeArabia News Service