Man-Made Threats Pose Largest Risk to NZ’s Largest Cities

Man-Made Threats Now Pose Largest Risk to NZ’s Largest Cities

• Over one-third (34%) of Auckland and Wellington’s economic output at risk is due to threat of a financial market crash

• Risk of cyber attack threatens over US$100m of Auckland and Wellington’s GDP annually

• New Zealand cities the most resilient in the world – rating above Australian cities

Man-made threats account for over half (53%) of the risk to the annual economic output (GDP@Risk) of New Zealand’s largest cities, according to Lloyd’s, the world’s insurance and reinsurance market.

In the latest edition of Lloyd’s City Risk Index (CRI), a financial market crash is the largest threat to Auckland and Wellington’s GDP, placing US$320m at risk annually across both cities – more than one-third (34%) the annual total at risk, which stands at US$940m. A financial market crash is also the top global risk, potentially reducing economic output in the world’s biggest cities by US$103.3bn.

Flood and volcano risk are the second and third largest threats to Auckland and Wellington’s GDP, placing US$120m and US$100m at risk. These are followed by the threat of cyber attack at US$100m – highlighting the importance of New Zealand building resilient digital infrastructure.

Auckland and Wellington are also among 16 of 92 cities in Asia Pacific (APAC) to receive the highest resilience rating possible of very strong. This is higher than all Australian cities included which are rated as having strong resilience.

Lloyd’s CRI was developed in collaboration with the Cambridge Centre for Risk Studies and measures

GDP@Risk from 22 separate threats in 279 cities across the world. These cities were chosen as they are the key engines of global economic growth, with an estimated combined economic output of US$35.4 trillion (equivalent to 41% of global GDP).

Worst-case scenarios:

The CRI includes an assessment of the estimated cost to each city’s GDP if a threat scenario occurred. This reveals that an extreme volcanic event could cost Auckland US$60.2bn and Wellington

US$21.5bn. An extreme flood or earthquake is the next most costly threat scenarios for both cities.

With Auckland and Wellington’s combined overall GDP at US$95.2bn, an extreme volcanic eruption, flood or earthquake at a national level could cost between 38% and 86% of the cities’ overall annual economic output.

Lloyd’s Australia and New Zealand Country Manager, Chris Mackinnon, said:

“While natural disasters have played a prominent role in New Zealand’s threat landscape historically, and will continue to, we see a rise in emerging man-made risks.

As New Zealand’s cities grow in size and significance globally, we see that risks such as a market crash and cyber attacks are becoming a greater threat to the economy.

While New Zealand should be incredibly proud of the best-in-class resilience it has built, the public and private sector should also maintain an eye on future risks.

We hope the findings of the Index will help governments, businesses and communities in their decision-making as they look to build resilience.”

Key global and Asia Pacific (APAC) regional trends identified by Lloyd’s CRI are:

• Exposures are highest in a small number of cities: The ten cities with the highest exposure to risk globally could together lose US$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: Climate-related risks together account for US$123.4bn GDP@Risk globally, and this sum is expected to grow as extreme weather events become increasingly frequent and severe. Tropical windstorms, with a total estimated loss of US$59.1bn each year, are the largest threat to the GDP of APAC’s cities. Over half (54%) of APAC’s exposure comes from natural catastrophes.

• 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 New Zealand, Japanese and South Korean 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 US$34bn.

ENDS

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