27 March 2017News

Lloyd’s report looks at city infrastructure resilience

Insurers need to work with stakeholders to make cities’ infrastructure to catastrophic events more resilient, according to a new report by Lloyd’s of London.

'Future Cities: Building Infrastructure Resilience' finds that while risk management remains a priority for cities, it is not enough on its own, or on an asset by asset basis. Instead city officials, investors and insurers will need to build resilience within and between infrastructure systems as a complementary approach to address infrastructure risk and uncertainty.

Lloyd’s suggested that the insurance sector took collective action to work with stakeholders and build greater city resilience in several areas such as improving data collection, using this new data to quantify the risk and help inform stakeholder decision-making, and establishing metrics to enable the development of indices and models to assess resilience.

"Most global population increases are expected to take place in cities that are more at risk from natural hazards, and cities in general are exposed to a greater diversity of risks than ever before," said John Parry, CFO of Lloyd’s. "It is absolutely critical, therefore, that city officials, working with insurers and other stakeholders, act to improve city resilience. The principles set out in this report represent a new approach that could substantially improve infrastructure resilience around the world."

In addition insurers could also find ways to incentivise investment by making resilience assessments available, incentivise policyholders to take risk mitigation measures through risk-based pricing, as well as develop collaborative models and tools that provide a transparent, comprehensive and accessible approach to analysing and pricing risk.

Furthermore, insurers should press for the creation of indices that can be used by insurers to incorporate levels of resilience into the underwriting process, create shared understanding of how the components and stakeholders of cities interact and what the key areas and concerns are for each stakeholder, and consider resilience services which draw on facilities management, disaster recovery, build and operate contracts and insurance.

Global exposure to disasters has risen over recent decades, a trend that is considered likely to continue because most global population increases are forecast to take place in Asian and sub-Saharan African cities, which are more at risk from natural hazards, according to Lloyd’s. In addition, cities are also exposed to a greater diversity of risks than ever before, including rapidly emerging cyber threats and terrorism.

The rising costs of disasters is a growing concern for the public sector and the insurance industry alike; direct losses from disasters in the past decade are estimated at $1.4 trillion. The Lloyd’s City Risk Index found that $4.6 trillion of the projected GDP (gross domestic product) of 301 of the world’s leading cities is at risk from 18 different threats over the next decade.