A Lloyd’s emerging risk report

Cities at risk

Building a resilient future forthe world’s urban centres

02

Disclaimer
This report has been co-produced by Lloyd's, Urban
Foresight and Newcastle University for general
information purposes only. While care has been taken
in gathering the data and preparing the report Lloyd's,
Urban Foresight and Newcastle University do notmake any representations or warranties as to its
accuracy or completeness and expressly excludes tothe maximum extent permitted by law all those thatmight otherwise be implied.
Lloyd's, Urban Foresight and Newcastle University
accept no responsibility or liability for any loss ordamage of any nature occasioned to any person as aresult 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 report.
This report does not constitute advice of any kind.
© Lloyd’s 2020
All rights reserved

About Lloyd’s

About Urban Foresight and Newcastle
University
Urban Foresight is a multidisciplinary innovation
practice and smart cities consultancy that is dedicatedto advancing the next generation of technologies,
services and policy frameworks for cities. From ouroffices in Newcastle and Dundee, we work with
ambitious organisations around the world on projects
that improve lives, protect the environment and boost
local economies.
Newcastle University’s Centre for Urban and Regional
Development Studies (CURDs) is based in the Schoolof Geography, Policy and Sociology. The centre
specialises in academically rigorous and policy
relevant research for the development of sustainableurban and regional areas. Their commitment toproducing impactful research that will enact policychanges has been driving CURD’s award-winning workfor over 40 years.

Key contacts

Lloyd's is the world's specialist insurance andreinsurance market. Under our globally trusted name,we act as the market's custodian. Backed by diverse
global capital and excellent financial ratings, Lloyd's
works with a global network to grow the insured world–building resilience of local communities andstrengthening global economic growth.

Trevor Maynard
Head of Innovation
trevor.maynard@lloyds.com

With expertise earned over centuries, Lloyd's is thefoundation of the insurance industry and the future ofit. Led by expert underwriters and brokers who cover
more than 200 territories, the Lloyd’s market develops
the essential, complex and critical insurance needed tounderwrite human progress.

For general enquiries about this report and Lloyd’s
work on innovation, please contact
innovation@lloyds.com

Graham Thrower
Head of Infrastructure & Investment, Urban Foresightgraham.thrower@urbanforesight.org

03

About the authors
Dr David Beeton is the CEO and Founder of Urban
Foresight. Before founding Urban Foresight and since,
David has worked in a variety of industries deliveringresults for public and private sector clients around theworld. This has invariably combined his twin passionsof innovation and sustainable development, deploying
creative solutions that will have a positive and enduring
impact. David holds a PhD in Technology Managementfrom Cambridge University where he pioneered newtechniques for technology road mapping andinnovation management, which he has applied to smart
city strategies and innovation partnerships with city
governments. He also holds two Masters degrees in
Civil and Environmental Engineering, an MBA and has
been inducted as a lifetime member of the Beta
Gamma Sigma honor society for business excellence.

Professor Mark Tewdwr-Jones is Professor of Cities
and Regions at the Bartlett Centre for Advanced
Spatial Analysis, University College London. Until
2020, he was Director of Newcastle City Futures andProfessor of Town Planning at Newcastle University.
He is one of the leading global authorities on urban
and regional planning, city futures, land use, historicand contemporary urban change, and community
participation in places and the author of 17 books. He
has been a visiting professor at Hong Kong, Berkeley
California, New South Wales, Shanghai, Pretoria,
Nijmegen, Dublin and Guadalajara. He is a former
adviser to the UK Government on planning and housing
issues, and advised the UK Chief Scientific Officer in
relation to land use futures and the future of cities.

Dr Graham Thrower is the head of infrastructure andinvestment at Urban Foresight. Graham has a PhD in
global markets for infrastructure investment and has
an extensive track record in raising strategic capitalfor technology deployment in over 30 countries
around the world. He was formerly a UK government
appointed Director of the Regional Development
Agency One North East. He works with national
governments and municipal authorities globally to help
them realise their smart city ambitions, digitallytransform their public services and to meet thechallenges of climate change.

Louise Kempton is a senior research associate at theCentre for Urban and Regional Development Studies &Associate Dean, Faculty of Humanities and Social
Sciences, Newcastle University. Louise has worked on
futures research and innovation strategy for city
regions around the UK and beyond. Through thedevelopment of smart placed-based strategies forcities and regions Louise is experienced at identifying
challenges and solutions needed for policy makers toensure cities of the future are liveable and sustainable.
Louise previously managed a portfolio of more than 50
projects contributing to creating a smart, innovativeand inclusive city as part of the Newcastle City Futures
Urban Living Partnership programme.

Sam Nair is a senior consultant at Urban Foresight.
Sam has built his consultancy career with a
combination of urban and environmental economics,
spatial analysis and regional policy expertise. He
manages Urban Foresight’s economic and placebased projects whether helping cities become net zerocarbon, understanding the resilience of regional
economies, or assessing the impact of emerging andfuture technology on businesses and labour markets.
Sam joined Urban Foresight in 2017 with a backgroundin NGOs, think tanks and supply chain consultancy
having completed a Masters in Regional & Urban
Planning Studies at London School of Economics andPolitical Science.

Pauline Giorgini is an Associate in the Innovation teamat Lloyd’s. Prior to joining the organisation, Pauline
worked at Ardian, a private equity firm where she
focused on the investment side, the Fund of Funds
division of the company. She has also taken care of
the long-term relationships with investors andpartners. Pauline has a background in Politics, Public
Policy and Economics from several work experiencesin public administrations and institutions. Pauline holds
a BA in International Relations from L'Institut d'Etude
des Relations Internationales (ILERI). In 2018 she
obtained an MSc in Public Policy and Administration
specialised in Public Management from the London
School of Economics and Political Science (LSE).

Contents

04

Acknowledgements−

Neil Walker, Head of UK Property, Brit

The following people were consulted or commented
on earlier drafts of the report, attended workshops
and 1:1 meetings, and provided their time and support
to the project; we would like to thank them all for theirinvaluable contributions:−

Mike Reid, Director of International Casualty, QBE−

David Eliot, Head of Terrorism & War, Miller
Insurance−

Julia Reffel, Senior Partner, Head of Practice,
Public Sector, UK Corporate, JLT Specialty Limited−

Ruth Lux, Head of Public Sector EMEA, Guy
Carpenter

Lloyd’s project team−Dr Trevor Maynard, Head of Innovation−

Pauline Giorgini, Associate, Innovation team−

Jorge Jockens, Commercial director, TBS Mexico−

Charlotte Walking, Senior Manager, Brand &Marketing−Anuar Munayer, Reinsurance General Director,
Lockton Mexico−

Emma Allen, Digital Apprentice, Brand &Communication−

David Vargas Chávez, Reinsurance, Patria Re−

Delfin Viloria, Partner, Risk & Analytics, Willis
Towers Watson−

Graeme Mackenzie, Risk & Resilience manager,
Dundee City Council & Director, Alarm

Urban Foresight and Newcastle University project
team−

David Beeton, CEO and Founder, Urban Foresight−

Dr Graham Thrower, Head of Infrastructure andInvestment, Urban Foresight−Caitlin James, Resilience Officer, London Fire
Brigade−Sam Nair, Senior Consultant, Urban Foresight−−Professor Mark Tewdwr-Jones, Professor of Cities
and Regions, UCL, formerly Director of Newcastle
City Futures and Professor of Town Planning,
Newcastle University

Alice Reeves, Deputy Chief Resilience Officer,
Head of 100 Resilient Cities for London, Greater
London Authority−

Kristen Guida, Manager London Climate Change
Partnership, Greater London Authority−

Sam Barnard, Senior Policy and Projects Officer,
Infrastructure, Greater London Authority−

Nathan Pierce, Programme Director for Sharing
Cities, Greater London Authority−

Jackie Binns, Property & Casualty Insurance andClaims Manager, Palm Beach County Board ofCounty Commissioners−

Kate Boicourt, Director of resilience, Waterfront
Alliance−

Dana Kochnower, Land Use & Buildings, NYC
Mayor’s office−

Eric Wilson, Land Use & Buildings, NYC Mayor’s
office−Stephen Beckage, Unit Head, FEMA Special
Projects and Insurance, City of New York Mayor’s
Office of Management and Budget−

Melissa Umberger, Director of Hazard Mitigation
and Recovery, NYC Emergency Management−

Heather Roiter , Executive Director of Hazard
Mitigation and Recovery, NYC Emergency
Management−

Louise Kempton, Senior Research Associate,
Centre for Urban and Regional Development
Studies & Associate Dean Faculty of Humanities
and Social Sciences, Newcastle University

Lloyd’s internal consultation−

Yelhis Hernandez, Country Manager, Mexico−

Enya He, Regional Director South Central, US−

Dawnmarie Black, Regional Director Northeast, US−

Rodney Smith, Regional Director Southeast, US−

Christina Xu, Deputy General Manager & Head ofMarket Development, China−

Amit Khilosia, Regional Head, Africa−

Easvarie Naidoo, Lloyd’s Representative and Headof Compliance, South Africa−

Sagal Awad, Office Manager, Dubai

Lloyd’s Market and other stakeholders−

Dana Cullen, Innovation Associate, Channel−

Gregory Lowe, Global Head of resilience andsustainability, Aon−

Steven Tebbutt, Head of Overseas Offices andGlobal Practice Leader, Political Violence & War,
Talbot−−Russell Kennedy, Managing Director – Property,
Brit

Dr. Jennifer Jurado, Chief Resilience Officer andDirector of the Environmental Planning andCommunity Resilience Division, Broward County−−

Matthew Tyler, Head of Open Market Property, Brit

Kamleshan Pillay, Adaptation Finance Manager,
C40

Contents−

Stephanie J. Hyde, Insurance & Risk Consultant,
Executive Director, PE-RISK−

Victoria Vital Estrada, Resilient Development
Program Officer, ICLEI – Local Governments for
Sustainability−

Keith Xia, Chief Risk Officer, OneHealth
Healthcare, China & Board Member, PARIMA (PanAsia Risk & Insurance Management Association)05

Contents

06

Contents

Executive summary ............................................................................................................................................................. 8
1. Introduction ..................................................................................................................................................................... 12
2. Trends shaping the future of cities............................................................................................................................... 15
3. Cities case studies......................................................................................................................................................... 23
Definitions ........................................................................................................................................................................... 24
New York............................................................................................................................................................................. 26
Miami................................................................................................................................................................................... 28
Johannesburg ..................................................................................................................................................................... 30
Shanghai ............................................................................................................................................................................. 33
Mexico City ......................................................................................................................................................................... 35
Riyadh ................................................................................................................................................................................. 37
London ................................................................................................................................................................................ 40
4. Risks and nexuses ......................................................................................................................................................... 43
Geopolitics and society ................................................................................................................................................. 44
Natural catastrophe and climate ................................................................................................................................... 49
Technology and space .................................................................................................................................................. 54
Finance, economics and trade ...................................................................................................................................... 57
5. Fostering further collaboration ..................................................................................................................................... 61
6. Conclusions.................................................................................................................................................................... 64
References ......................................................................................................................................................................... 66

Cities at risk
Building a resilient future for the world’s urban centres

Executive summary

A Lloyd’s emerging risk report

Executive summary

08

Executive summary

Overview
More than half the world’s population now lives inurban areas, up from a third in 1950. This is projected
to reach two-thirds by 2050. These urban
environments range from connected and sophisticatedmetropolises to unplanned and informal settlements.
Megacities of 10m+ people will increase from 31 to 41
by 2030. These will be the economic powerhouses
driving future global GDP (UN, 2018).
However, urbanisation is occurring on an uneven basis.
Driven by concentrations of productive humanpopulations and associated economic yields, large
cities now account for around 75% of global GDP,
forecast to rise to over 85% by 2030 (McKinsey
Global Institute, 2016). As cities continue to grow anddevelop, the amount of assets at risk is increasing. Yet,
many cities could do more to strengthen theirresilience reduce their risks, and protect theireconomies and populations. (UN-Habitat, 2016).
COVID-19 has sharpened the world’s attention on thecapacity of cities to withstand the impacts of systemicrisks such as pandemics, highlighting features that
contribute to greater resilience as well as greater
vulnerability. COVID-19 has also brought into focus theimpacts systemic risks can have on our urban areas,
with severe economic and social consequences
extending across the world.
This report, published in association with Urban
Foresight and Newcastle University, andcommissioned before COVID-19 swept around theworld, analyses the risks cities are facing and will facein the future. It also looks at how these threats willaffect urban areas.
This study helps city administrators and risk managers,
as well as Lloyd’s market insurers and brokers,
understand the risks that will influence the design andfunction of cities in the coming decades. It provides
insight into how these threats could be reduced andhow local authorities and insurers could be working
together to do so.

It helps insurers understand better the factors that canheighten or reduce a city’s vulnerability, and work with
officials to provide additional risk transfer support.
The report also emphasises the role insurance canplay in helping municipalities transfer risk. It looks at
how insurers are planning for every class of businessin the cities of the future, and what that means for new
product and service development.

Executive summary

Key findings
The trends shaping cities
The report uses four global trends to show the type ofchanges that are affecting cities – and will continue toaffect - cities worldwide. These trends are themselvesconnected and include several sub trends. The four
trends are:
Changing planet. Climate change is a global priority,with cities responsible for a large proportion of carbon
dioxide emissions. Urban life is being, and will
increasingly be, affected by extreme weather events,
which are projected to happen more frequently andwith greater severity.
Changing systems. As society changes, cities are
adapting their infrastructure, becoming moreinterconnected and using technology to share assets
and services.
Changing people. The middle class is growing indeveloping economies, while the population is
becoming older in developed countries. This presents
opportunities and challenges for public authorities (e.g.
development and construction of infrastructures).
Levels of trust in government, media and large
businesses are deteriorating, with people
demonstrating on the streets to show theirdisaffection with the political and social climate. The
spread of infectious diseases, such as COVID-19, isemerging more frequently and severely in urban areas.
Changing technology. The use of new technologies is
growing. Cities are becoming more interconnected andare becoming ‘smart’ ecosystems. Around the world,
the way businesses and people work will change due
to technological and cultural developments, some ofwhich has accelerated in response to COVID-19.

Future risks facing cities
Based on the framework used by the Cambridge
Centre for Risk Studies, this report identifies four maincategories of threats facing cities. These risks interact
with one another and have the potential to adversely
impact 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 politicalclimate is one of significant tension in some areas. Thishas created uncertainty and drained confidence, andthus deterred long-term investment. The risk ofresource scarcity, social unrest, pollution, pandemics
and terrorism is more acute.

09

Natural catastrophe and climate. Cities are dealing
with the pressures of climate change. Concentrationsof 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 themost 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 role insurance can play in protecting
citiesManaging risks can be done using different tools. Risk
transfer is one of the possibilities. The report does not
focus on other sets of tools but recognises theirefficiency. The report emphasises (1) what role
insurance as a risk transfer tool should play in cities’
broader risk management strategy and (2) how caninsurance data and approaches help cities take betterrisk management decisions overall.
Insurers and reinsurers can play a valuable role inprotecting cities from these types of threats and are
already doing so in many cases. For example, Lloyd’s
has developed a range of insurance solutions thatenable cities to transfer risks. Insurance products
covering threats like political risks, natural
catastrophes, cyber risks or finance and economic
risks are illustrated in the report.
However, in general, cities are still underinsured. This
report finds there are several reasons why this is thecase.

Barriers preventing cities from buying
insurance
The study found the insurance industry and cities needto develop stronger and more effective working
partnerships. Based on the research carried out forthis report, the following hurdles need to be overcome
before this can happen:
Cultural barriers. Historically, municipalities mainly selfinsure the risks they face. The idea of transferring all
risks to third parties is not yet the norm in the public
sector.

Executive summary

Knowledge gap. Insurance penetration rates are still
low in most countries, and in developing economies
customers have lower awareness of insurance
products or the value of risk transfer.
A lack of communication. Local authorities would likemore clarity about insurance products in terms ofcoverages and pricing methodologies.
Prevention of long-term partnerships. Some processes
such as tendering are preventing local authorities andinsurers from collaborating over the long-term.

Next steps for insurers and city officials
Cities provide business opportunities for insurers as
they tend to be more affluent and have more assets,
people and liabilities that need protecting than ruralzones. At the same time, there is desire on the part oflocal authorities to develop relationships with insurers
to mitigate and transfer risk off the public balance
sheet and into private capital.
To realise this commercial opportunity insurers andcity 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 todevelop 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 wellas 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 expertiseand 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 thisregard.

-Meet customers’ needs. Insurers and brokers
should engage more with customers tounderstand better what they are looking for.
Interacting more with insureds will help them
adapt and improve their products.

10-

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, andfacilitate the development of appropriate risk
transfer solutions.

Understanding the insurance industry’s role
Insurers can play a major role in helping cities become
more resilient in the following ways:-

Risk managers. Insurers have data andanalytics on catastrophe risk. They could share
this data to define the price of insuring specificrisks and to guide risk managers’ insurance
buying (ICLEI, 2017).

-

Risk carriers. Insurers could pay insurance
claims to alleviate the impact of disasters andtake recovery costs off the public balance
sheet (ICLEI, 2017).

-

Major institutional investors. Insurers could
invest in vehicles such as resilience bonds that
could shape the future of urban areas. They
have a direct interest in reducing risks andimproving resilience in cities to reduce losses(ICLEI, 2017).

-

Risk advisors/brokers. As risks become evermore complex and more interconnected, therole of the broker is becoming lesstransactional and more advisory. Through theirvast databases and modelling expertise, risk
advisors can push insurers to develop new
products and services, creating competitionand levelling the playing field for cities andmunicipalities.

Executive summary

Ideas for products development
Interviews and research undertaken for this report
indicate these product development ideas could be
explored:-

Public entities’ umbrella insurance policies
could be extended to other geographic areas.
Public entity packages could include a range of
products for different classes of risks targetingthe public sector’s specific risk transfer needs.

-

A claims data repository could be created tohelp identify trends relating to the losses
incurred by cities. Insurers could use thisinformation to advise cities on their risk
transfer requirements.

-

A register of recognised issues for various
segments (e.g. industry, client, national) could
be established to share expertise. The register
could develop cross-sector and industry
learning.

-

Risks pools for emerging risks could be
developed and implemented (e.g. similar to
Pool Re for terrorism).

11

Cities at risk
Building a resilient future for the world’s urban centres

1. Introduction

A Lloyd’s emerging risk report

1. Introduction

12

1. Introduction

While urbanisation has occurred on an uneven basis
every region of the world has seen an increase inurban 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 (UN,2018). Today, the most urbanised regions include
Northern America (with 82% of its population living inurban areas in 2018), Latin America and the
Caribbean (81%), Europe (74%) and Oceania (68%)(UN, 2018). At least half a billion more people will livein cities in 2025 compared to 2019. Africa and Asia
will be home to 86% of new urban citizens. Europe is
only set to see city populations grow by 10 million
people.
Cities, and particularly major global cities, are morethan just concentrations of people. They are
networks of people and services. They are very
complex ecosystems, involving energy, water andsewerage, food, transport, health and biodiversity, as
well as economic, social and cultural systems. This
network of systems, interconnections and flows canbe described as a system of systems.
Figure 2: Cities as systems of systems
Physical andBuiltsystems

Ecologicalsystems

Social andEconomic
systems

These systems fall naturally into three core areas:−

Physical and built systems such as
infrastructure, commercial and residentialbuildings, utilities and networked technology;−

Ecological systems such as green
infrastructure, natural spaces, water
catchment systems, natural resources and air
quality;−Social and economic systems such as
demographic characteristics, governance andlegal systems, economic systems, culture andcustoms, characteristics of labour markets
and ethical norms.

“New and persistent challenges willcontinue to shape the landscape ofurban areas for years to come”.

As cities continue to evolve, these systems become
more interconnected and perils affecting one system
can have knock-on effects on others. It means that
assets or types of business which have previously
been isolated from a particular threat or peril may inthe future be exposed. These disruptions can have adisproportionate effect on the economy due to theconcentration of GDP being created in cities. Theseclustering or agglomeration effects mean that any
management of risks should be considered within asystems view, especially as cities are increasingly
home to a variety of stakeholders, from themunicipalities themselves, businesses, and theindividuals that choose to make cities around theworld their homes.

1. Introduction

The unique physical, social, economic andenvironmental composition of a city influences thedegree of risk and vulnerability of its citizens. Whilesome of the risks are not new, they are persistentand growing across the last two decades and willcontinue to shape the landscape of urban areas foryears to come. However, new threats are also
developing, and cities will have to manage them.
Enhancing resilience at city and global scale will
require action at many levels to move from reacting
after a disaster strikes, to creating a world where
failure to plan in advance is unacceptable. Local
authorities need to continue to prepare for andlessen the effects of threats.
The insurance industry can help mitigate the risks
cities are facing. Insurance is a key mechanism bywhich humans prepare for risk and has played acentral role in the development of the global
economy. Insurance policies create confidence,
encourage innovation and enterprise, and ultimately
enable human progress. However, insurers will haveto work on and develop adequate products thattarget policyholders’ future needs.
While the physical evolution of cities will takedecades given the time it takes to procure, financeand build infrastructure and for society to change,
insurers are planning now for the implications of the
future of cities for every class of business, and areconsidering developing new products and services
that will meet customers’ needs. The insurance
industry could start now to help municipalities
mitigate the risks they will face in the future.
Lloyd’s of London has been looking at cities since2015, starting with the Lloyd’s City Risk Index
produced in collaboration with the Cambridge Centre
for Risk Studies followed by the Future Cities:
Building infrastructure resilience published incollaboration with Arup in 2017.
For this report Lloyd’s has worked in collaboration
with Urban Foresight and Newcastle University. This
study is designed to enable the Lloyd’s market aswell as cities’ risk managers to better understandwhat the big trends impacting the development of
cities in the coming years are, how these trends arealtering the threats faced by cities and how cities aremanaging them. The report emphasises the role
insurers can play to help municipalities transfer risks
and the existence of Lloyd’s risk transfer solutions
opportunities to meet policyholders’ needs.

13

The report presents seven case studies: London,
New York City, Miami, Mexico City, Johannesburg,
Riyadh and Shanghai. These cities havecharacteristics of other metropolises around theworld and can be used to demonstrate global issues
and cross learning. The case studies can also serveas scenarios to understand how specific risks aremanaged and mitigated at city level (Section 3: Cities

case studies).

Figure 3: Selected cities for the 7 case studies –City
risk index
New York• A highly technological and stronger resilience city. Located at atemperate latitude, exposed to coastal and river flood risk. A highdensity city with no informal settlements.

Miami• A mid-technological and stronger resilience city. Low-lying and locatedat a tropical latitude, exposed to sea-level rise. A mid-density city withno informal settlements.

Shanghai• An urbanising mega-city which is highly technological with moderate
resilience. A coastal city exposed to sea level rise and estuary floodrisk, located at a temperate-tropical latitude.

Riyadh• A mid-technological and stronger resilience city. A desert city withwater scarcity, located at a tropical latitude. Low density, with a policy
to densify as the economy rapidly diversifies.

Mexico City
• A mid-technological and weaker resilience city. Located inland ataltitude and at a tropical latitude, in a water scarce area. A sprawlingcity, with a significant level of population in informal settlements.

London• A highly technological and very strong resilience city. Located at atemperate latitude, exposed to sea level rise. A densifying city with noinformal settlements.

Johannesburg• A mid-technological and weaker resilience city. Located inland, at a
tropical latitude, with high levels of intra-continental inward migration. A
rapidly changing city with high inequality and a significant level of
population in informal settlements.

1. Introduction

14

To understand changes affecting cities worldwide,four different trends have been considered whenlooking for common characteristics and risks sharedby the seven selected cities. These trends arethemselves connected, and a number of sub-trends
have also been used to highlight interconnections(Section 2: Trends shaping the future of cities).
Figure 4: The four trends examined

Figure 5: The four risk areas affecting cities
The study then moves onto four risk areas drawn
from the Lloyd’s City Risk Index. These four risk
areas highlight the effects and impacts at city level(Section 4: Risks and Nexuses).
Finance,economics
and trade

Geopolitics
and society

Technology
and space

Naturalcatastropheand climate

Cities at risk
Building a resilient future for the world’s urban centres

2. T
 rends shaping the future ofcities

A Lloyd’s emerging risk report2. Trends shaping the future of cities

15

2. Trends shaping the future of cities

The megatrends and sub-trends in Figure 7 were developed by the Lloyd’s Innovation Team in 2018 following a 1year horizon scanning exercise. These trends are shifts and forces that are reshaping the world we live in. The
awareness of megatrends and sub-trends offers real insights as they influence risk management and insurance
products – from the businesses insurers provide risk transfer for to the risks policyholders will have to mitigate andhow insurers should think about finding new opportunities.
Megatrends and their sub-trends are interconnected, meaning that none of them exists in isolation and they often
overlap. Their intersection results in ‘nexus of risks’ resulting in a compounding and interconnection of emergent
and changing risk. This section explores what the implications are for cities right now and in the future.
Figure 6: Four trends shaping the future of cities

2. Trends shaping the future of cities

Changing planet
Concentrations of GDP
Driven by concentrations of productive humanpopulations and associated economic yields, large cities
now account for around 75% of global GDP, forecast to
rise to over 85% by 2030 (McKinsey Global Institute,2016). As cities continue to grow and build resilience,
assets at risk will also increase.
In Western Europe, North America and Japanurbanisation is slowing or stagnant. With little or no net
population increase to drive GDP growth, economic
success in cities will revolve around the potential
demographic shift to a larger working age population andincreased productivity and incomes.

Climate change
Human activities have increased carbon-dioxide
emissions, driving up temperatures. While there arenatural fluctuations in the climate it seems thattemperatures are now rising faster than at any other timein recorded history. Climate policies agreed during the2015 Paris Agreement are estimated to result in between
2.6°C and 3.4°C of warming, way above the limit of 2°C(Intergovernmental Panel on Climate Change, 2018).
There is uncertainty about how great the impact of achanging climate will be. Nevertheless, climate change is
expected to increase the frequency of extreme weather
events.
Climate change is a global phenomenon that impacts
materially on urban life. Rising global temperaturescauses sea levels to rise and increases the number ofextreme weather events. It has costly impacts on cities’basic services, infrastructure, housing, and human
livelihoods. Cities are a key contributor to climate change,
as urban activities are major sources of greenhouse gas
emissions. Estimates suggest that cities are responsiblefor 75% of global CO2 emissions, with transport andbuildings being among the largest contributors (UNEnvironment Programme, 2019)
Transition and liability risks impact cities and business
operating in cities. Lloyd’s report Below 2°C provides a
strategic overview of the potential effects of the low
carbon transition on the general insurance market. This
work focuses on the impact of transition and liability risks
on general insurance, seeking to understand sectoral
trends up to 2030.

16

Population growth
The UN population index shows that the global
population will swell to 11 billion by the end of thiscentury. According to this forecast at least half a billion
more people will live in cities in 2025 compared to 2019
(UN, 2017).
The challenge of population growth demands innovative
city development, the deployment of new technologies
and strong metropolitan policy making for urban
populations to benefit and to be economically productive.
Greater access to gainful employment and fit-forpurpose housing connected by integrated transport can
improve living standards and grow GDP on the back of arising population. This version of the future however is
not without risks and challenges. Urban populations are
growing and as cities progress through theirdevelopment journey so do their citizens. Three to fivebillion new consumers who have never purchased or
uploaded anything are about to come online and provide
a significant impetus to global GDP.

Urbanisation
More than half the world’s population now lives in urban
areas, up from a third in 1950. This is projected to reach
two-thirds by 2050. These urban environments range
from connected and sophisticated metropolises tounplanned and informal settlements. Megacities of 10m+
people will increase from 31 currently to 41 by 2030.
They will be the economic powerhouses driving future
global GDP growth (UN, 2018).
Table 1: Urban agglomerations, 1970, 2018 and 2030
1970

2018

2030

Rank

City

Rank

City

Rank

City

1

Tokyo

1

Tokyo

1

Delhi

2

New York

2

Delhi

2

Tokyo

3

Osaka

3

Shanghai

3

Shanghai

4

Mexico City

4

Sao Paulo

4

Dhaka

5

Buenos Aires 5

Mexico City 5

Cairo

6

Los Angeles

6

Cairo

6

Bombay

7

Paris

7

Bombay7

Beijing

8

Sao Paulo

8

Beijing

8

Mexico City

9

London

9

Dhaka

9

Sao Paulo

10

Calcutta

10

Osaka

10

Kinshasa

Source: UN, 2018

2. Trends shaping the future of cities

Migration, rising birth and declining mortality rates incities mean urban areas will keep growing faster thanrural ones. Factors driving migration are multifaceted andinclude war, religious and political dissidence, sustained
and chronic underinvestment in rural areas, lack of jobs,
international migration, and the pull of an urban life.
Global populations will continue to shift to the lessdeveloped regions.
Europe has been at the centre of migration issues inrecent years. The migration wave into European
countries of refugees and asylum seekers is occurring
against the backdrop of international fights against
terrorism, as well as a relatively weak labour market andpoor economic conditions in these migrants’ countries oforigin. This large migration wave represents a risk for city
authorities because in the absence of integration policies,
it can lead to the formation of ghettos and marginalisedcommunities (Meeks, 2016).

Growth in city boundaries
In much of the world urbanisation has resulted in
sprawling cities wherever more people are crowded oncompromised land. Cities are growing and extending
their boundaries, building on land that is not prepared orappropriate for new infrastructures (e.g. flooding zones).
This is exacerbating risks for cities and their population.
Sprawling cities also can become inefficient. One
example is Dar es Salaam, Tanzania. Relatively small by
megacity standards, it is set to grow from 6 million
inhabitants today to over 10 million by 2026. In response
to congestion, the city is creating a new bus system toallow residents to have access to transportation within
the space of few years. The average journey time issupposed to decrease, saving time for bus passengers.
But this new infrastructure brings new vulnerabilities - thecapacity of the bus fleet was halved after the main depot
flooded and, smart card readers failed, leading tonegative impacts on revenue (Guardian, 2019).
Vision City on the edge of Kigali in Rwanda and KingCity in Ghana are targeted at the middle classes(Giles, 2018). Other developments, such as Kenya's
new tech hub Konza, plan to include space for
productive commercial activity. However, suchdevelopments create the risk of ‘dual cities’, witholder, informal parts of the city left under-developed
and more exposed to risks (Noorloos & Kloosterboer,2018).

17

Unplanned and informal settlements
Slums and informal settlements are not a new issue
for cities and continue to be a persistent risk for local
authorities. Today 1 billion people live in informal
urban settlements and this is due to increase to 2
billion by 2030 (Barthel, 2017). Inequality has becomea major emerging urban issue, as the gap between
the rich and the poor in most countries is at its
highest recorded levels (Politico, 2017). As cities inemerging economies have grown, so have theirinformal settlements: The World Bank estimated thatin 2011, 880 million residents lived in informal
settlements, which represented 11% growth from2000. The International Monetary Fund believes 53%
of countries have seen a rise in wealth inequality inthe past three decades
There are a number of factors exacerbating thethreat of civil conflict and social unrest. These factors
are fanning the embers of discontent around theworld, embers which occasionally and increasingly
burst into flames. Indeed, the World Economic
Forum’s 2018 survey of business leaders identified“rising income and wealth disparity” as the third mostimportant risk facing economies today. Rapid
urbanisation in lower income countries will continue
to be accompanied by the proliferation of informal,
low-rise and low-quality housing - an inefficient urban
sprawl disconnected from formal transport andutility infrastructures of the city.

Densification of assets
Planned densification results in more tall buildings
being developed in concentrated places, often
revolving around residential or mixed-use
developments. Highly densified cities will result in araised exposure infrastructure risk. Whereas
countries across Sub-Saharan Africa areexperiencing a boom in new developments on the
peripheries of existing overpopulated cities, cities like
London and New York are densifying by building
upwards.

2. Trends shaping the future of cities

Box 1: The only way is up – New York City
The planning system allocates volumetric height allowances as a function of plot footprint. Buildings which do not
use the full vertical allocation of their plot therefore have unused development height according to current Zoning
laws. Transferable Development Rights (TDRs), or air rights, allow landowners to sell any unused development rights
to adjacent lots. Owners of adjoining plots can buy these rights, enabling them to be aggregated over time andultimately to increase the height of their own development.
It is estimated that air rights are currently trading for $225 per square foot which is more than three times as muchas the national average building cost, but much less than the average $1,780/sq. ft cost of a Manhattan condo. One
example of this is the 95-storey residential development Central Park Tower, which purchased air rights in 2014 for$31.8 million and is set to complete in 2020 (Sinclair Colman, 2017).
Without regulatory changes there are huge untapped TDRs which can be utilised with 3.7 billion square feet
available across New York, enough air rights to build more than 1,300 Empire State Buildings. Around 1.8 billion
square feet of these are in current residential zones. In comparison just 1.6 million square feet of air rights weretraded in 2016 (Municipal Art Society of New York, 2017).
Risks can manifest in two ways:−

In cases where a group of shareholders in a cooperative sell air rights, if one of the shareholders challenges thetransaction post-closing, the title company would be required to defend and indemnify the air rights purchaser.

−

Political risk can threaten the value of collateralised air rights.

This is already happening in New York, but other cities are experiencing the same issue, and this is something toconsider now before others take this as best practice and it becomes normality.

18

2. Trends shaping the future of cities

Changing people
A growing middle class
A growing middle class could lead to challenges similar tothat of a young population. Asia is expected to be home
to nearly 9 in 10 of these new middle-class citizens(Naím, 2017). This nascent middle-class will demand
improved living standards, education, health andconnectivity and, require more intensive forms ofagriculture to meet their dietary expectations. Failure toservice this socio-economic grouping will likely lead totheir disaffection with public services and governments.
In Colombia, middle-class protests about education andtransport brought disruption to Bogota (AssociatedPress, 2018).
Africa now has the fastest growing middle class in theworld. The current trajectory suggests that the African
middle class will grow to 1.1 billion (42% of population) by
2060 (Deloitte, 2014).
Growing urban populations and a larger middle-class will
increase demand for urban infrastructure and mobility.
Significantly increased grid capacity will be required tosupport the expected rollout of smart city and smart
mobility infrastructure.

Ageing cities
Ageing cities in developed economies present an
economic opportunity and a challenge. Relatively
high levels of disposable income and asset wealthare accompanied by increased demands aroundhealth, social care and accessibility. Opportunities
exist for technology companies providing in-homeassistance and monitoring, or for the retail andservice sector.
In Japan annual GDP growth could be impacted by
one percentage point reduction per annum during thenext 30 years due to population decline and ageing(Financial Times, 2018). In Vancouver, older people
cannot afford to downsize in the urban core either
through buying or renting, prompting new policies
and zoning changes to broaden the range of housing
options (City of Vancouver, 2017). The Lloyd’s report– Taking control: robots and risk - explores how
robots could be a way to assist and help ageing
populations, but might also introduce new risks suchas damage to property, healthcare and homecarerisks associated with working directly on people andrisks linked to the use of artificial intelligence inagriculture.

19

Increased provision of infrastructure such as lifts,
elevators and air conditioning are deployed in cities
to answer this population’s upcoming needs. For
example, a 2014 power blackout in Buenos Aires
lasting days resulted in several deaths reported ofelderly citizens who were left unable to use air
conditioning.

Trust, social media and governance
Levels of trust in government, media and large businessare deteriorating. Macro issues such as climate change
and terrorism, social, economic and political flux haveresulted in citizens being more vocal in politics.
Social media giants remain powerful platforms andkey opinion formers. It is therefore a matter ofongoing concern and a challenge for policy makers
that such platforms continue to wrestle with issues
such as targeted disinformation content pushed todifferent socio-demographic groups.
The public sector is facing a general increase inlitigation. States and local authorities across theglobe are already faced by lawsuits challenging
insufficient climate protection policies and the nonimplementation of international climate treaties.
Claims are mainly based on human rights and public
international law. For example, claimants argue that
their governments’ climate policies are insufficientand so violate their human rights, including the rights
to life, health and property (CMS, 2019).
Institutions of metropolitan governance areconstrained almost as never before. Sovereign debt
levels across much of the globe have played out into
an environment of public fiscal austerity. National andcity governments are increasingly constrained interms of human and financial resource. The newparadigm of the technology informed smart city
makes significant demands on the relationship thecity has with its citizens in terms of trust, but also
requires significant investment in the technology toharvest the relevant data - from infrastructures, thepublic realm and ourselves – but also to process andinterrogate that data once captured. It is within thecontext of these institutional challenges that global
cities are operating.

2. Trends shaping the future of cities

Social unrest
The current political climate is one of significant
uncertainty and tension. In addition to the macro trend ofa shift in economic and political power toward the Eastand to China, there are political and economic tensions
between the major trading blocs.
Citizens are being empowered; they are reacting to andengaging in the political dialogue. Citizens are also
protesting against social inequalities and their generalconditions. Some cities in less developed countries havebeen unable to marry productive industrialisation andemployment opportunities with burgeoning unplanned
and uncontrolled urban immigration flows, resulting inlower average incomes for citizens and an elevated riskof social instability.
There will be a growing risk of instability and civil unrestin countries where job creation and economic growthdoes not keep pace with rising youth populations. 58% ofyoung people in the Middle East and North Africa(MENA) told the International Labour Organisation thatthey were dissatisfied with the number and nature of job
opportunities (Future Agenda, 2019).
For example, Uganda has one of the world’s youngest
populations with around 70% of the population being
under 25 years old (United Nations, 2018). This created awidespread unrest in Kampala in August 2018 (BBC,2018), said to be the result of youth disillusionment with alack of employment opportunities and politicaldisengagement (African Institute for Development Policy& University of Southampton, 2018).

20

2. Trends shaping the future of cities

Changing technology
Smart cities, big data and systemic risks
In 2018, the total smart cities market reached $308
billion. It is expected to grow to $717.2 billion by 2023
(Smart Market, 2018). These will provide an institutional
and technological framework to re-think the provision of
essential services in the urban realm. Static, dynamic andcitizen generated data will inform continued service
improvements and increase concentrations oftechnology assets.
As datacentres grow in importance, capacity and power
demand the impact to society and industry of energy
network shocks or blackouts increases. Interruptions toenergy supply will likely bring more and more city activity,from business to mobility, to a standstill.
Artificial intelligence, automation and robotics, virtualand augmented reality are affecting all sectors in the
global economy. Connected by the Internet of Things(IoT) this technological revolution is referred to as
Industry 4.0.
To make sense of this new world, Lloyd’s report:

Networked world: risks and opportunities in theInternet of things published in collaboration with the
University College London’s (UCL) and the PETRASIoT Research Hub analyses IoT’s opportunities, risks
and regulatory landscape.

Changing nature of work and disruption
Around the world, the way in which businesses andpeople work will change due to technological andcultural developments. Workplaces in cities are
evolving. Digital disruptors will create new markets
and as smart city data and technologies become
more prevalent, cities will themselves become
platforms to drive innovation and value creation.
Industry 4.0 and the increasing use of technology in theworkplace will displace jobs in some geographies andsectors and create new ones in others. The impacts will
be unevenly felt across different job and skill levels,
sectors and geographies. Technology is changing theway we consume goods and services and ultimately thephysical and human resource assets required togenerate value and revenue in cities.
In the USA, geographical differences in the impact of AI
on jobs is stark. In absolute terms, 8.6 million jobs are at
risk in California, 6.5 million in Texas and 4.6 million in
New York State (Miller, 2018).

21

Parts of Latin America that have the highest proportionof low-skilled workers are most at risk from job
displacement, demonstrating the importance of ensuringa growing workforce have opportunities to benefit from,and not lose out to, automation (Borgen, 2018).
The development of artificial intelligence in cities is going
to change the way these ecosystems are structured andevolved. AI can enable sustainable cities, maintaininfrastructure, and improve public services for residents
and communities. AI technologies can be deployed at
different levels in cities. Driverless cars could bring relief
from traffic congestion and human error on the road. AI
technologies for security purposes are implemented incities for surveillance and predictive policing at the street
level (Citylab, 2017).

Box 2: Driverless cars – risk andopportunities at cities level
Car manufacturers are currently competing indeveloping driverless car technology. The Society ofMotor Manufacturers and Traders believes that
3,900 road deaths in the United Kingdom could be
prevented with driverless car technology (Edbrooke,2020).
As the arrival of driverless cars get closer, cities are
getting ready. City planners are currently reviewing
the organisation of urban areas to prepare for theautonomous future. Some see an opportunity tocreate on-demand public transit or open streets formore green space and greater walkability. However,others see possible issues, warning that suchvehicles could encourage greater urban sprawl andcut into funding for public transit (Higgins, 2018).
Oxbotica is an autonomous vehicle software
company whose AI-powered software, Selenium, isbeing used to develop driverless cars. The use of AI
helps the vehicles navigate complex routes
efficiently and safely. AXA XL and Oxbotica haveworked together to deliver a risk management
solution for autonomy, as well as supporting the
adoption of autonomous vehicle technology. This
collaboration has seen the development of a realtime risk model that enables a better understandingof how to improve overall system performanceacross a range of real-world conditions. The system
has displayed the potential to transform how
insurance and autonomous vehicles will work
together in connected cities (Oxbotica, 2019).

2. Trends shaping the future of cities

22

Changing systems
Sharing economy platforms

Box 4: Milan – Sharing cities

Cities are becoming hosts of this new economic
system based on the use of technology to shareassets or services between parties. Participants inthe sharing economy use it because it can provide amore flexible and affordable option than some othereconomic systems. As a result, numerous sharing
economy models have emerged including peer-topeer, business-to-business, business-to-crowd, as
well as equipment and service sharing for publicagencies. Despite the clear opportunity, respondents
representing both consumers and providers cite anumber of concerns around risk, which arepreventing shared platforms from growing theirconsumer and provider bases. Lloyd’s analysed thisnew phenomenon in two reports: Sharing risk,

The Sharing Cities programme is providing groundfor a better approach to making smart cities a
reality. The programme aims at fosteringinternational collaboration between industry andcities, the project seeks to develop affordable,commercial-scale smart city solutions.

sharing rewards: who should bear the risk in the
sharing economy? and Squaring risk inthe sharing age: How the collaborative economy isreshaping insurance products?

In the service sector digital technology is alsochanging the way shops operate. ‘Dark kitchens’refers to food prepared at remote takeaway
premises rather than in the restaurant itself. These
activities are increasing the value of previously
marginal urban spaces. This shift of value creation tosmaller and lower quality property units has
interesting insurance consequences. Property
owners may see an increase in the property value
due to demand from food delivery businesses, but
the clustering of dark kitchens in less regulated,
lower quality and densely populated neighbourhoods
raises the risk of fire starting and spreading.

Box 3: Housing opportunities and risks
Real estate platforms are creating opportunities andrisks for municipalities to understand and regulate.
In most touristic cities, landlords have realised they
can make more profit out of short lets by using
platforms such as Airbnb than from renting toconventional tenants who work and live in the city
year-round. This is creating a housing crisis as it
becomes more difficult for residents to findaccommodations (Hinsliff, 2018).
For example, Amsterdam is heavily restricting shortterm lets by residents after street protests theswamping of the city by tourists last year. Other
European cities are also restricting day and shortterm let (Hinsliff, 2018).

Milan developed an extensive smart and sharing city
strategy in the run up to hosting the World expo in2015. The city has become one of the leading
European cities in the field of social innovation,
smart shared mobility and sharing economy. Milan
has created an online register which includes a listof over 100 operators and experts of the sharing
economy. This list allows the city to map the
stakeholders of the sharing economy (Euro Cities,
2017).

New power centres
There is a macro trend of a shift in economic andpolitical power toward the East and to China.
Regional programmes are having global impacts andforegrounding global infrastructure investment in theEast. For example, China’s Belt and Road Initiative(BRI), an ambitious programme to connect Asia with
Africa and Europe via land and maritime networks,
aims at improving regional integration, increasing
trade and stimulating economic growth (EBRD,
2020). The BRI includes 68 countries accounting for
one third of global GDP and 60 per cent, or 4.5 billion,of the world’s population (London School of
Economics LSE IDEAS & CIMB ASEAN ResearchInstitute, 2018). China’s investment in smart city
technologies, infrastructure and manufacturing
across the world will profoundly impact the emerging
cities of the BRI, the economic activity they pursue
and the insurable assets they house.

Changing cities and state conflictSocial and cultural change is feeding emergent
tensions between metropolitan and national
governments. The views of these cosmopolitan urban
populations often contrast with wider national
sentiment. Like all major world cities London’spolitical and cultural outlook is often in contrast to
the rest of the country. The most significant exampleof this was the 2016 referendum on the UK’s
European Union membership. London was the only
region in England where most voters wanted to stayin the EU. With technology and digitalisation comes a
new form of connectivity. Access to the internet haschanged the way citizens organise, mobilise, share
information and educate.

Cities at risk
Building a resilient future for the world’s urban centres

3. Cities case studies

A Lloyd’s emerging risk report3. Cities case studies

23

3. Cities case studies

This report focuses on seven cities that can be used
to demonstrate issues seen globally and enablecross-learning. The selected cities are London, NewYork City, Miami, Mexico City, Johannesburg, Riyadh
and Shanghai.

However, the location of a city can have an impact on
the risks it is facing. A general typology includes
coastal cities, dryland cities, inland and high-altitudecities.
−Cities around the world, including the seven casestudies, are at different stages of their development
trajectories in terms of urbanisation, economy,
population, land use, and technology deployment.
This also means they are at one point in their risk
profile journey and challenges are emerging from thechanging trends. These trajectories can provide
lessons for smaller cities which share some of thecharacteristics of the seven cities investigated. Cities
are constantly facing new challenges and dealing
with existing persistent ones. These challenges willcontinue to shape the landscape of urban areas foryears to come.

Coastal cities are made vulnerable by the
low-lying land they are typically built on. They
are susceptible to impacts related to climatechange such as sea-level rise, flooding andcoastal erosion. They historically haveincluded a high percentage of the world’s
population because people move to the coast
due to the trading and inter-connectivity
aspects of these cities, and hence
employment opportunity. The 10 coastal
cities in terms of most exposed populations
are Mumbai, Guangzhou, Shanghai, Miami, Ho
Chi Minh City, Kolkata, Greater New York,
Osaka-Kobe, Alexandria and New Orleans(World Bank Group, 2012).

−

The Lloyd’s City Risk Index shows that $48.52 billion
of GDP is at risk in the seven cities selected.
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. New York
City with $14.83 billion GDP@Risk is facing morethreats than the other cities.

Dryland cities suffer from scarce water
resources due to extended droughts andmore frequent sandstorms. The effects ofdroughts are widespread but can beparticularly severe on drinking water supplies
and food prices. Innovations to access water
are being developed by the local authorities
in dryland zones. The city of Dubai forexample is carrying out cloud seeding
operations to maximise and increase theduration of rainfall (Zaatari, 2019).

−

Inland and high-altitude cities will be affectedby climate change predominantly as a resultof changing patterns of precipitation. In manyof these cities, minor floods that affectpeople’s lives and livelihoods take place more
frequently than other major disasters, butthese events are seldom reported outside thelocal area (World Bank Group, 2012). For
example, Mexico City is an inland and highaltitude metropolis with, both rainfall driven
flooding and yet a shortage of potable water.

“The unique physical, social,economic and environmental
composition of a city influences thedegree of risk and vulnerability of
its residents”.

One way of looking at cities is by looking at where
they are located. Indeed, specific assessment ofurban risks will differ across cities based on different
factors such as poverty levels, the pace ofurbanisation, exposure to disaster risks andawareness surrounding climate change.

3. Cities case studies

24

Definitions-

GDP - Gross Domestic Product - is the total monetary or market value of all the finished goods andservices produced within a country's borders in a specific time period. It functions as a comprehensivescorecard of the country’s economic health.

-

GDP@Risk is the average annual loss to a selected location’s economic output from each threat .

-Scenario costs is the amount of GDP that a city will lose if a specified threat scenario occurs.
--

GNI – Gross national income – is the total amount of money earned by a nation's people and businesses.
--

Extreme loss is the loss if an extreme scenario took place.
GNI per capita is the gross national income divided by the midyear population.

Eight top threats facing the seven case studies according to the City Risk Index
Flood

Civil conflict

Interstate
conflict

Cyber

Marketcrash

Sovereign default

Tropicalwindstorm

Human pandemic

How do we use this data in the case studies?
For each of the city case studies we show the annual “GDP@Risk” for the top three hazards on that basis. We also
show an estimate of the loss arising from an extreme event of that nature should it arise in the year. It is importantto realise the difference between these concepts.
The GDP@Risk is an estimate of the average amount of GDP that would have to be saved each year – in order topay for the hazard over the long run. It is not the amount of economic damage that would arise if the event
occurred. Events come in all sizes – from relatively small which can happen quite frequently to very severe which
tend to happen rarely. To illustrate the size of potential loss we also show an “Extreme Loss” figure which shows
the amount of economic damage that could arise from an extreme but plausible example of the event.
Making this more concrete, the Cambridge/Lloyd’s City Risk Index estimates that an extreme cyber-attack on New
York could cost $330bn. However, the GDP@Risk from Cyber-attack (the amount that should be saved annually to
pay for the costs over the long term) is $2.53bn, less than 1% of the potential economic damage a cyber-attack
might cause.

3. Cities case studies

Figure 7: Top threats facing the seven cities case studies

25

Cities at risk
Building a resilient future for the world’s urban centres

Case study New YorkA Lloyd’s emerging risk report3. Cities case studies

26

New York
A highly technological and stronger resilience city. Located at a temperate latitude, exposed tocoastal and river flood risk. A high-density city with no informal settlements.

Table 2: New York - Key data in 2018

However, New York takes a lead in policies to reduceenergy consumption and emissions creating newmarkets for renewable energy and associatedtechnologies.

Greater metropolitan area
population

19.9m

Total country GNI per capita$63,080

Total country GDP$20,544bn

Total city GDP$1,681bn

A vision of New York city in 2050

Global city GDP@Risk$15bn

City top threats

GDP@Risk

Scenario costs –Extreme loss

OneNY 2050 consists of 8 goals and 30 initiatives
that comprise a strategy to prepare New York City
for the future (OneNY 2050, 2019):

Market crash$3bn$308bn

Flood

$2bn

$1,300bn

Cyber

$2bn

$333bnSources: City Risk Index, 2018; OECD. Stat, 2018; World Bank,
2018

New York City is a mature global city that plays acentral role in the world economy. New York is a longstanding financial and trading hub, a leader inemerging sectors and a city becoming more diverse
through international migration. As with cities like
London, New York’s large and diverse labour
markets, public transport networks and access toinvestment finance means it is a leader in deploying
new smart city technologies.
New York has the highest GDP@Risk from Finance,
Economics and Trade of all cities in the City Risk
Index. New York’s risk profile is most similar to
London’s, another global market and smart city where Finance, Economics and Trade accounts forover 30% of GDP@Risk. As with many cities aroundthe world, New York is exposed to the risks ofclimate change through sea level rise and increasing
temperatures.

1)

Create a vibrant democracy that welcomes
newcomers and engages all New Yorkers incivic life.

2) Build an inclusive economy that attracts andgrows good-paying jobs and guarantees fairwages and dignified work conditions.
3) Support thriving neighbourhoods with safe,
affordable housing and ample community
resources.
4) Promote healthy lives by guaranteeing accessto quality health care and a healthy environment
for all, regardless of neighbourhood, income,race or ethnicity, or gender.
5) Provide equity and excellence in education witha focus on creating strong schools that reflect
the diversity of thought, backgrounds, andexperiences of the communities they serve.
6) Secure a liveable climate for the next
generation with a just transition that ends ourreliance on fossil fuels, fully prepares for the
impacts of climate change, and achieves climate
justice.
7) Ensure efficient mobility for all by restoring our
subways and buses to world-class status so no
New Yorker needs to rely on a car.
8) Invest in modern infrastructure that serves theneeds of New Yorkers and creates the systems
to better deliver that infrastructure.

3. Cities case studies

27

What is changing?
The Metropolitan Transport Authority is planning to raise up to $60 billion of capital investment to modernise thesubway over the next 10 years (EY, 2019) to provide new subway cars and buses and to improve mobility access tothe network (Matousek, 2018). The subway network will remain systemically vulnerable to flooding (Gannon, 2018).
One of the biggest changes facing building developers and owners will be the implications of the Climate
Mobilization Act (CMA) passed by New York City authorities in April 2019. The new regulation sets emissions caps
and energy efficiency measures.
Congestion road pricing in Manhattan will increase reliance on public transport and shared mobility. Smartinfrastructure for bus management is planned, and road pricing along with planned People Priority Zones withrestricted vehicle access could increase demand for shared micro-mobility accessed via digital platforms.
Focus on the future
New York will remain a nexus city whose markets are at the core of global trade and the international financial
system.
Global markets require extremely time sensitive trading and market-making systems and the ability to process
large volumes of data will remain critical to their operation. New York’s tech and finance sector have an existing
vulnerability to the threat of power outages and cyber-attack. Critical public services and transit systems are also
increasingly reliant on the secure movement of data and high-speed connectivity. Additionally, data platforms
delivering everything are reliant on the same ageing energy grids.

New York City’s Hazard Mitigation PlanThroughout its history, New York City has been confronted with natural disasters and man-made events. Each time
the city is learning how to make its infrastructure, environment and people more resilient. However, New York City
changed its approach to disaster planning. New York City has shifted towards mitigation, to reduce losses after adisaster.
The Hazard Mitigation Plan outlines goals, objectives, and specific actions New York City can take to reduce risks.
The plan details the city’s mitigation strategy for all hazards. It is ensuring that New York City is continuously
identifying, assessing and reducing risk from hazards threatening the city. The aim of this strategy is to be costeffective and sustained action taken to reduce the long-term risk to human life, property, and infrastructure fromhazards. In order to be eligible for post-disaster mitigation funding from the Federal Emergency Management
Agency (FEMA), the hazard plan has to be updated every five years.
In May 2019, NYC Emergency Management (NYCEM) launched the FEMA approved Hazard Mitigation Plan - thefirst online plan for a local jurisdiction. This on-line plan identifies 11 hazards that pose a risk to the city and actions
the City is taking to reduce the impacts of these hazards: coastal erosion, coastal storms, earthquakes, extreme
heat, flooding, high winds, winter weather, CBRN, cyber threats, respiratory viruses, and emerging diseases. To
understand the city’s risk and actions to reduce the risk, the website contains multiple tools that can be a resource
for community groups, businesses, government stakeholders, and academia. This includes: Hazard History andConsequence Tool – an online database which contains both historic weather data and localised impacts fromhazard events; the Mitigation Project Tracker - an interactive map which displays over 800 mitigation projects
citywide; and the NYC Hazard Environment Story Map – which provides an existing conditions analysis of how
features in the city’s natural, social, built, and future environment may amplify the impacts of hazard events througha series of interactive maps and dashboards. In addition, the NYCEM developed a user-friendly communications
guide called NYC’s Risk Landscape: A Guide to Hazard Mitigation, which is a hard copy version of the HMP website.
Through this new online format, NYCEM anticipates that the plan will be more useful to its partner agencies andaccessible to the general public. In addition, the website provides the foundation to build additional interactive tools
for its users that will continually be updated to communicate risk awareness and promote mitigation investments inthe city. (NYC Hazard Mitigation, 2019)

Cities at risk
Building a resilient future for the world’s urban centres

Case study Miami

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28

Miami
A mid-technological and stronger resilience city. Low-lying and located at a tropical latitude,
exposed to sea-level rise. A mid-density city with no informal settlements.

Table 3: Miami - Key data in 2018
Greater metropolitan area
population

6.3m

Total country GNI per capita$63,080

Total country GDP$20,544bn

Total city GDP$339bnGlobal city GDP@Risk$3bn

This continuing urbanisation and population growth
are set to put more strain on infrastructure andhousing supply in the city leading to increased
vulnerability of business and built assets to flooding
and hurricanes.

Resilient 305

GDP@Risk

Scenario costs –Extreme loss

Flood

$0.6bn$263bnMarket crash$0.6bn

$62bn

Cyber

$0.4bn$67bn

City top threats

Sources: City risk index, 2018; OECD.stats, 2018; World Bank,2018

As a low-lying city, Miami is well known for the risk it
faces from coastal flooding and hurricanes. These
make property in the city one of the biggest
concentrations of real-estate risk in the global
reinsurance market. In the long-term, projections
estimate between $15 billion and $23 billion ofexisting Florida property will be underwater by 2050
(Risky Business, 2014).
Miami has the 34th highest GDP@Risk to Natural
Catastrophe and Climate threats in the City Risk
Index. The city has a similar risk profile to San
Francisco where Natural Catastrophe and Climate
accounts for 35.4% of GDP@Risk and Finance,
Economics and Trade 28%.
Miami is forecasted to see a growing resident andbusiness population following a similar pattern of
population growth as neighbouring cities like Fort
Lauderdale.

Greater Miami & the Beaches (GM&B) is a uniquepartnership of Miami-Dade County, the City ofMiami, and the City of Miami Beach. Thispartnership came together to lead development of
their community’s resilience under the 100 Resilient
Cities Network.
Resilient305 is a strategy built to enable Greater
Miami and the Beaches (GM&B) to more effectively
tackle emerging global challenges and trends suchas urbanisation, globalization and climate change.
The strategy is focusing on 3 key areas:
1)

Places action: aim to address location-based
challenges and improve climate resiliencethrough research, design and planning; create,connect, and improve mobility and housing
options; and enhance and safeguard theecosystems.

2)

People action: aim to improve the lives of our
citizens every day by supporting job and wealthcreation; addressing specific health needs forthe most vulnerable; and preparing andempowering neighbourhoods and networks toanticipate and respond to disruptions.

3)

Pathways action: aim to build the connections,collaborations, and committed leadershipneeded to change the status quo, enabling
GM&B to become a global leader in resilience.

(Resilient 305, 2019)3. Cities case studies

29

What is changing?
Miami-Dade County is one of the oldest populations in the USA and has the most 60+ residents in Florida, morethan half a million. This number expected to rise to over 800,000 by 2040.
The ageing population challenge in Miami is exaggerated by the fact that 20% of the city’s elderly residents haveincomes below the federal poverty line of 75% (Rothman, 2015) which could have implications for health insurers.
The Miami-Dade Age-Friendly Initiative is an established programme focusing on ensuring public spaces andbuildings, transport and housing are adapted to be more accessible (Age Friendly Initiative - Miami-Dade County,2017). A shortage of affordable and rentable accommodation is a challenge preventing ageing residents frommoving into more suitable and accessible homes This is increasing demand for goods and services to help care forresidents and assist them in living independently, creating new market opportunities for private companies.
Focus on the future
Miami is adopting smart city technology, investing in large scale transport infrastructure and climate adaptation
measures and seeing the emergence of local energy generation and efficient buildings. For example, Miami has
already been declared the leading city in the world for smart streetlights with 500,000 connected streetlights
compared to 280,000 in Paris, the next highest (Smart Cities World Forum , 2018).
The Miami-Dade SMART Plan is set to see investment to upgrade and extend the public transport network along
rapid transit corridors incorporating smart city technology. The coming three years will see smart city
demonstration projects such as last mile solutions using electric vehicles and on-demand mobility services using
mobile apps (Miami-Dade Transportation Planning Organization, 2020).

Southeast Florida Regional Climate Change Compact
Southeast Florida is home to the eighth-largest metropolitan population in the U.S. – over 6 million people. The
region is particularly vulnerable to climate change. High-density coastal development, which dominates the state’s
modern landscape, sits atop a very flat, low elevation limestone foundation. This low-lying topography makes
people, infrastructures and economy vulnerable to the impacts of rising sea levels. Sea level rise can exacerbate
storm surges, decrease capacity of gravity-fed stormwater drainage and increase saltwater intrusion of theregion’s drinking-water aquifers.
Given these challenges, the Southeast Florida Climate Change compact was created by Broward, Miami-Dade,Monroe and Palm Beach counties in 2009 to coordinate climate mitigation and adaptation activities across county
lines (Southeast Florida Regional Compact, 2020).

Broward County Resilient Actions
Broward County has undertaken a series of strategic actions and investments to coordinate resilience planning
across the organisation. The County is committed to reducing greenhouse gas (GHG) emissions through energy
conservation and clean energy initiatives. The County has comprehensively integrated climate and sea level rise
considerations across the broad spectrum of local government planning processes including water supply,
emergency management, comprehensive planning, land use planning, and capital budgeting to provide a framework
for integrating the economic, environmental, and social factors of climate change.
The County has worked collaboratively to develop regional resilience standards to support coordinatedinfrastructure investments, engaging municipalities and stakeholders in the process. Fundamental to these efforts
has been the use hydrologic models and down-scaled climate data to inform requirements for drainage, flood
elevations, design storm events, and tidal flood barriers (Broward.org, 2018).

Cities at risk
Building a resilient future for the world’s urban centres

Case study Johannesburg

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Johannesburg
A mid-technological and weaker resilience city. Located inland, at a tropical latitude, with highlevels of intra-continental inward migration. A rapidly changing city with high inequality and asignificant level of population in informal settlements.

Table 4: Johannesburg - Key data in 2018
Greater metropolitan area
population

10.5m

Total country GNI per capita$5,750National Development Plan 2030

Total country GDP$368bnTotal city GDP$77bn

Global city GDP@Risk$1bn

City top threats

GDP@Risk

Scenario costs– Extreme loss

The National Development Plan or NDP, launched in2012, offers a long-term perspective. It aims toeliminate poverty and reduce inequality by 2030. South
Africa can realise these goals by growing an inclusive
economy, building capabilities, enhancing the capacityof the state, and promoting leadership andpartnerships throughout society. The NDP highlights 14priorities that need urgent actions. These are:Civil conflict$0.3bn$38bn

Sovereign default$0.2bn$28bn

Market crash$0.2bn$11bn

Sources: City risk index, 2018; World Population Review, 2020;
World Bank, 2020

Johannesburg has plans to be Africa’s fastest
growing smart city, a growing financial sector and avibrant business-start up and community culture.
However, it is a city of contrasts. On the one hand
Johannesburg can be viewed as a global city with a
key role in the southern hemisphere economy and a
gateway to the African continent for business andinvestment. On the other, there is a risk of growing
polarisation as efforts to address social problems
cannot keep pace with health epidemics, corruption,
the social inequalities that are a legacy of apartheid,
the growing threat of social unrest and tensions
surrounding the volume of migrants from a wide
African diaspora. Johannesburg has the 39th highest
GDP@Risk to Finance, Economics and Trade threatsin the City Risk Index. The city has a similar risk
profile to Buenos Aires, where Finance, Economics
and Trade risks accounts for 52% of GDP@Risk andGeopolitics and Security 29%.

1)

Quality basic education

2)

A long and healthy life for all South Africans

3)

All people in South Africa are and feel free4)

Decent employment through inclusive economic
growth5)

A skilled and capable workforce to support an
inclusive growth path6)

An efficient, competitive and responsive economic
infrastructure network

7)

Vibrant, equitable and sustainable ruralcommunities contributing to food security for all

8)

Sustainable human settlements and improved
quality of household life9)

A responsive, accountable, effective and efficientdevelopment local government system

10) Protecting and enhancing environmental assets
and natural resources11) Create a better South Africa, contribute to a betterand safer Africa in a better world
12) An efficient, effective and development-oriented
public service13) An inclusive and responsive social protection
system14) A diverse, socially cohesive society with a common
national identity (Brand South Africa, 2017)

3. Cities case studies

31

What is changing?
Johannesburg’s Corridors of Freedom (CoF) vision has a goal to overcome the negative effects of urban sprawl
and the reliance on private cars or crowded public transport for citizens living in wealthier suburban communities(Du & Lvovna Gelman, 2018). More importantly, the CoF project focusses on social development by providing
better access for poorer communities to the urban centre and connecting informal settlements to centres of
employment, education, leisure and recreation (Robinson, 2013).
The economic centres along these corridors will continue to undergo further densification with high-rise residential
developments, new office buildings and retail and leisure space. By connecting marginalised communities to new
districts, the CoF aims to link economic development with improved social health and wellbeing. In addition tochanging the shape and appearance of Johannesburg the city government is accelerating its plans to become
Africa’s leading smart city.
Focus on the future
Looking to the future of climate change adaptation and mitigation and human well-being, Johannesburg has aunique yet almost hidden asset. The city has one of the largest urban forests in the world (Wende, 2010) with 6
million trees, part of a total of an estimated 10 million trees in the city (Buff, 2012) (Ferrini, et al., 2017). The
economic value of these forests as green infrastructure or as space for urban food production has the potential toincrease. However, in the immediate term the forest appears to be a factor in increasing the risk of the plant
epidemic peril, hosting an insect infestation which has spread to agriculture sectors putting food exports at risk
Uncertainty over the security of electricity supplies could undermine Johannesburg’s smart city plans with more
technology increasing exposure to cyber-attack or disruption. In a broader sense Technology and Space related
threats are likely to grow in importance as more of Johannesburg’s business activity involves digital platforms anddata. Nationwide, analysis indicates a 22% increase in attempted cyber-attacks during the first quarter of 2019
(Zulu, 2019).

3. Cities case studies

JOBURG 2040 GDS
Launched in 2011, the Johannesburg 2040 Growth and Development Strategy (JOBURG 2040 GDS) defines thecity’s vision for the next 30 years – “Johannesburg – a World Class African City of the Future – a vibrant, equitable
African city, strengthened through its diversity; a city that provides real quality of life; a city that provides
sustainability for all its citizens; a resilient and adaptive society” (Joburg - a world class African city, 2011). The cityof Johannesburg has stepped-up strategic effort aimed at rebranding itself as a smart city and competitive city at
the centre of innovation toward improved life experiences. JOBURG 2040 GDS aims to ensure that socioeconomic
infrastructure will ultimately improve citizens’ experience. Four major outcomes define the Joburg 2040 GDS.
−

Outcome 1: Improved quality of life and development-driven resilience for all−

Outcome 2: Provide a resilient, liveable, sustainable urban environment – underpinned by infrastructure
supportive of a low-carbon economy−

Outcome 3: An inclusive, job-intensive, resilient and competitive economy that harnesses the potential of
citizens−

Outcome 4: A high performing metropolitan government that pro-actively contributes to and builds asustainable, socially inclusive, locally integrated and globally competitive Gauteng City Region

City of Johannesburg - Climate Change Adaptation Plan
As a result of projected climatic changes, the city of Johannesburg in 2009 launched the Climate Change
Adaptation Plan. The plan integrates and prioritises strategic investments and activities to reduce climate risks. A
number of risks have been identified and categorised according to an “Action Plan” based upon the potential
magnitude of the risk’s impact and the likelihood of the risk eventuating. Strategic adaptations have also beendeveloped and focus on the following areas (City of Johannesburg, 2009):− Integrating climate change adaptation into existing strategic planning mechanisms−

Developing alternative financing options for the funding of adaptations−

Developing an Information Management System to support ongoing climate change risk assessment and costbenefit analysis−

Maintaining and expanding stakeholder engagement.

32

Cities at risk
Building a resilient future for the world’s urban centres

Case study Shanghai

A Lloyd’s emerging risk report3. Cities case studies

33

ShanghaiAn urbanising mega-city which is highly technological with moderate resilience. A coastal city
exposed to sea level rise and estuary flood risk, located at a temperate-tropical latitude.

Table 5: Shanghai - key data in 2018

The BRI also consists of the network of sea routes
springing from the megacities running along thecountry’s eastern maritime border, principally centred
on Beijing/Tianjin, Shanghai and Hong Kong. The One
Belt and the One Road intersect at Shanghai,
reinforcing its critical position as an existing andfuture trading hub.

Metropolitan area population

25.6m

Total country GNI per capita$9,460Total country GDP$13,608bn

Total city GDP$551bnGlobal city GDP@Risk$8bn

City top threats

GDP@Risk

Scenario costs– Extreme loss

Tropical winstorm$2bn$119bnMarket crash

$2bn

$79bn

Human pandemics$1bn$198bnSources: City risk index, 2018; Macrotrends, 2020; World Bank,
2020

A city with historical ties to trading, and one ofChina’s and the world’s most internationallyconnected cities, Shanghai occupies a criticalgeopolitical position at the delta of the Yangtze River.
With a population of 26 million and rising (World
Population Review, 2019), this maritime trading megacity has the opportunity for continued growth whilst
needing to develop a resilient infrastructure
proposition in the face of rising sea levels and thechallenges of a changing climate (Baca, 2019).
Shanghai has the 8 highest GDP@Risk from Natural
Catastrophe and Climate, with Taipei, Manila andTokyo making up the top three. However, Shanghai’srisk profile is different to these three cities having
more in common with Los Angeles, where Natural
Catastrophe and Climate risks accounts for 47% of
GDP@Risk and Finance, Economics and Trade risks
23%. China’s Belt and Road Initiative (BRI) is areconfiguration and re-imagining of the ancient Silk
Road.

China 2030
A 2013 World Bank report prepare a strategic
framework for reforms that could assist China’s policy
making. Vision 2030 for China is to build a modern,harmonious and creative society. The report identifies
six new strategic directions that will form the corecomponents of the new strategy for China.
1)

The appropriate role of the government, the state,
and the private sector: China’s vision of itself in
2030 as an innovative, high-income society will
require markets and the private sector to play abigger role in resource allocation decisions.

2)

Encouraging systemwide innovation and adopting
an “open” innovation system with links to global
R&D networks. Ensuring free and fair competition
for all enterprises would be the single mostimportant policy to encourage innovation.

3)

China should “grow green”: green development
could potentially become a significant new growth
opportunity.

th4)

Promote equality of opportunity and social
protection for all: China’s high inequality inincomes and assets can, in part, be attributed tounequal access to quality public services.

5)

Build a sustainable fiscal system that will meet
expected public finance challenges over the next
two decades.

6)

Develop mutually beneficial relations for the rest of
the world. (World Bank, 2013)

3. Cities case studies

34

What is changing?
The Shanghai Metropolitan Plan calls for “One Dragon Head, Four Centres.” This means that Shanghai will be thedragon head of the entire Yangtze River Delta metropolitan region, containing an international economic centre, afinancial centre, a trade and logistics centre, and “an international centre of socialist modernisation” (Zang, et al.,2020).
Shanghai continues its expansion towards becoming a 100-mile city (Logan, 2008), an increasing number of local
government bodies and development corporations are responsible for urban centres across the wider metropolitan
area. In-between land is in places less well planned than new developments, with lower quality and isolated
residential areas. These areas could see increasing physical and mental health issues and risks of social unrest.
The city so far is big enough to house old and new districts and the different demographic groups who live in them.
However, as development continues and land availability for planned densification becomes constrained thechallenge of integrating the old and new raises the risk of social unrest.
Focus on the future
Shanghai will remain a nexus trading city at the heart of global trade and a key nodal point in growing intra-Asianflows of goods and services. As such it will remain exposed to the macro environment around international tariffs
and trade agreements. Material adverse movements in such international economic policies could affect marginalcommercial businesses and reduce the competitiveness of the worst affected export led sectors. This in turn may
result in stranded physical manufacturing assets if activities are re-located to lower cost production areas.
The ageing nature of its existing populace is likely to see a greater degree of diversity of both domestic andinternational workers in the city. International workers will bring increased expectations of liberalised access to
information and consumer goods, whilst domestic migrants may force the weakening of the long-standing hukou
system. Added to this the emerging middle-class has higher expectations of public services and increasingly
demands access to a western style diet. In aggregate these are material cultural, social and political currents thathave risks attached should they be constrained.

“Sponge city” initiative
A growing number of megacities such as Shanghai are sinking at the same time as seawaters are seeping in. Thisnot only because they are heavy, but because of the extraction of vast quantities of groundwater by their residents(World Economic Forum, 2019).
Chinese local authorities are taking action to mitigate and adapt to sea-level rise. In 2014, China launched the“sponge city” initiative. The strategy requires that 80% of all urban land is capable of absorbing or reusing 70% of
storm water. The goal is to repurpose and retrofit cities so they can absorb water. Candidate cities are investing inpermeable pavement, artificial ponds and wetlands and rain gardens that store excess rainfall in undergroundstorage tanks and tunnels. Some city authorities are entering into public-private partnerships to cover the costs(Zevenbergen, et al., 2018)
Shanghai’s authorities are putting enormous stock in adaptation strategies. Shanghai has constructed 520
kilometres of protective seawalls and has also installed massive mechanical gates to regulate overflowing rivers(World Economic Forum, 2019).

Cities at risk
Building a resilient future for the world’s urban centres

Case study Mexico

A Lloyd’s emerging risk report3. Cities case studies

35

Mexico City
A mid-technological and weaker resilience city. Located inland at altitude and at a tropicallatitude, in a water scarce area. A sprawling city, with a significant level of population in
informal settlements.

Table 6: Mexico City - Key data in 2018
Greater metropolitan area
population

20.5m

Total country GNI per capita$9,180Total country GDP$1,221bn

Total city GDP$284bnGlobal city GDP@Risk$8bn

City top threats

GDP@Risk

Scenario costs– Extreme loss

Market crash

$3bn

$39bn

Tropical windstorm$1bn$335bnCivil conflict$1bn$129bnCDMX Resilience strategy
Mexico City (CDMX) faces multiple risks, bothnatural and man-made.

Sources: City risk index, 2018; OECD.stat, 2018; World Bank, 2020

The second most populous city in Latin America andthe largest Spanish speaking city in the world,
Mexico City is often considered as one of the mostimportant financial and cultural centres in the region.
It occupies a total of 1,485 square kilometres (573square miles) (World Population Review, 2019).
Mexico City has the 13th highest GDP@Risk fromNatural Catastrophe and Climate, behind New York,
Seoul, Xiamen and Suzhou. Mexico City’s risk profile
is most similar to Houston, where natural catastropheand climate accounts for 39% of GDP@Risk and
Finance, Economics and Trade at 26%.
The demographics of Mexico City are similar to other
cities with a relatively young and a growing workingage population. Census data from Mexico's National
Institute of Statistics and Geography (INEGI) showsthat the numbers of foreigners in the country has
grown by 95% in the past decade, the majority ofwhich is from the US (World Population Review,2019).

In 2013, Mexico City was selected to be part of the
100 Resilient Cities initiative. The CDMX Resilience
Strategy is being developed as part of this initiative,
and to address the challenges facing the city
through five pillars. These pillars will drive theimplementation of actions to improve the adaptive
capacity, disaster response, and infrastructuredevelopment of CDMX. The 5 guiding principles are:1)

Foster regional coordination: maintaining a
regional view and coordination at all levels are
key to building resilience.

2) Promote water resilience as a new paradigm tomanage water in the Mexico basin: ensure equal
access to the water supply and guarantee thewater supply for the entire population.
3) Plan for urban and regional resilience: citizens
have equal access to urban amenities, housing,green areas, and public spaces.
4) Improve mobility through an integrated safe andsustainable system: Investment in public
transportation is required in order to improve
the quality and safety of the mobility system, as
well as to create an integrated system thatserves the entire population of the city.
5) Develop innovation and adaptive capacity:
innovative processes and tools must be
developed that enable government and various
social and economic sectors to be aware of andunderstand their vulnerabilities and reduce therisks they face.
(CDMX, 2013)

3. Cities case studies

36

What is changing?
In positioning itself as an 'innovation bridge’ between North and Central/South America, as well as a launch pad forEuropean and Asian companies looking to tap into the large markets in the surrounding area, Mexico City has acompelling economic offer for the future (Virgin, 2020). The City’s accelerating growth and renewed economic
vigour have brought fresh challenges to this megalopolis, including mobility.
Infrastructure and services are being extended into its densely populated informal settlements, commerce andservices are growing (City Lab , 2017). This process of the gradual formalisation of mature informal settlements
into Mexico City’s greater urban fabric can be seen repeated elsewhere in Latin America and will bring buildings,
physical infrastructure and businesses, as well as the millions of people that live in these changing urban realms,
into the market for insurance products.
Focus on the future
Mexico City is a city with both too much water (particularly during the rainy season of June to September) andnot enough (potable water is piped in from remote valleys at huge distance from the metropolis) (Tortajada,2007) (Watts, 2015). As with transport and energy infrastructure, the city’s water infrastructure requires
significant investment to service the existing population by conventional means (Rodriguez, 2019) .
When the need to meet carbon emissions targets are added into the infrastructure investment picture then it canbe seen that the coming decade presents a material economic, logistical and planning challenge.
Water management and energy generation are the two key nexus risks that will impact on economic growth,
attractiveness of the region to business and quality of life. A further macro sensitivity arises from Mexico’s
national trading relationship with its neighbour to the North – the USA.

Mexico – Financial resilience and disaster response
Mexico stands at the forefront of initiatives to develop comprehensive disaster risk management programs.
As part of its disaster risk management efforts, in the late 1990s the Federal Government of Mexico established theFund for Natural Disasters - Fondo de Desastres Naturales (FONDEN). The FONDEN was established as amechanism to support the rapid rehabilitation of federal and state infrastructure affected by natural events. The
Emergency Fund is a financial instrument for immediate disaster response, providing relief, aid and assistance toseverely affected populations. FONDEN consists of two complementary budget accounts: the FONDEN Programfor Reconstruction and the FOPREDEN Program for Prevention (Natural Disaster Prevention Fund ( Fondo para laPrevención de Desastres Naturales)).
In the early 2000s, in recognition of the need to strengthen preventive actions for natural catastrophes, funding forpreventive activities were allocated (FOPREDEN). FONDEN has evolved since its creation to improve the efficiency
of its resources
To access FONDEN resources, affected federal and state agencies must demonstrate that the magnitude ofreconstruction needs exceeds their financial capacity. FONDEN does not provide direct support to municipalities.
However, state governments have traditionally applied for FONDEN resources to restore municipal assets and havethen provided municipalities with assistance for the execution of these resources (World Bank, 2012).

Cities at risk
Building a resilient future for the world’s urban centres

Case study Riyadh

A Lloyd’s emerging risk report3. Cities case studies

37

RiyadhA mid-technological and stronger resilience city. A desert city with water scarcity, located at a
tropical latitude. Low density, with a policy to densify as the economy rapidly diversifies.

Table 7: Riyadh - Key data in 2018

The economy has traditionally been unbalanced anddominated by the oil industry, whilst the public sector
has been the main source of employment. The mixed
economy is being built on sectors such as financeand retail.

Metropolitan area population

6.9m

Total country GNI per capita$21,600

Total country GDP$644.94bn

Total city GDP$157bnGlobal city GDP@Risk$5bn

City top threats

GDP@Risk

Scenario costs– Extreme loss

Interstate conflict$3bn$171bnMarket crash$0.5bn$26bn

Civil conflict$0.4bn$65bn

Vision 2030
Saudi Arabia’s vision for the future expresses thecountry’s long-term goals and expectations andreflects its strengths and capabilities. The blueprint
is based on three pillars:−

happy and fulfilling life as a strong foundationfor economic prosperity. This society is
characterised by strong roots and foundations
that emphasise moderate Islam, national pride,
Saudi heritage and Islamic culture. World classentertainment options, sustainable living, care in
the community, and efficient social and healthcare systems should also be offered.

Sources: City risk index, 2018; Macrotrends, 2020; World Bank,
2020

Riyadh is a car dependent, low density city subject tothe climate and environmental perils associated withcities in arid and high-temperature regions. The
spatial nature of Riyadh is representative ofsprawling cities in middle-income economies. Like
many cities across Asia, Riyadh is constructing a
metro network and rolling out a series of new smart
city programs and initiatives.
Riyadh has the 5th highest GDP@Risk from
Geopolitics and Security, behind Cairo, Istanbul,
Baghdad and Tokyo. Of these, Riyadh’s risk profile ismost similar to Cairo, where Geopolitics and Security
accounts for 75% of GDP@Risk and Economics andTrade 14%.
Riyad along with the rest of Saudi Arabia is seeing
explosive population growth. There has been
considerable liberalisation recently. More unique to
Riyadh is the planned speed and scale of economic
reform and diversification of the economy to create
new private sector jobs in a mixed service economy.

A vibrant society where everyone enjoys a rich,−

A thriving economy: a key focus is to create anenvironment which unlocks business
opportunities, broadens the economic base, andcreates jobs for all Saudis. The country aims at
attracting best talent, increasing global
investment, simulating and diversifying economy
and revenues.

−

An ambitious nation: the vision 2030 aims at
creating a high-performing government that is
effective, transparent and accountable. It
empowers citizens, the private sector and nonprofits to take initiative. It also transforms thecountry’s location into a global hub connecting
three continents (Asia, Europe and Africa).

The Vision set outs 96 strategic objectives thatcascade from each of the three pillars (Saudi Vision
2030, 2017).

3. Cities case studies

38

What is changing?
To date the city has grown in a sprawling manner with unorganised land uses (Al-Mosaind, 1998). In response, theRiyadh Metropolitan Development Strategy set out to densify the city by increasing the proportion of medium
density housing in the residential stock, a process which is continuing in the coming years (Future Saudi Cities,
2017).
Government policy is focused on increasing both land and building supply to encourage densification. The Idle
Land Tax, or ‘white land tax’, makes levies on landowners of undeveloped land and uses proceeds to fund‘suburban core’ developments around Riyadh where high-density and high-rise mixed-use developments are being
built (Construction Week, 2019). A 2.5% White Land Tax was approved in November 2015. Under the law, ownersof empty plots of urban land designated for residential or commercial use in towns and cities will have to pay a tax
of 2.5% of the value of the land each year (EY, 2016).
Riyadh continues to be a car dependent city; a consequence of the relatively unplanned nature of its low-density
urban growth coupled with a lack of public transport. The city will see the growth of new mobility assets in
response to these challenges. US$23 billion is being invested in public transport including the expansion of 176
km of metro lines and 1,200 km of rapid bus routes (Dixon, et al., 2019 ).
Focus on the future
Riyadh’s climate leaves the population at risk to high temperatures, increasing the demand for energy to power
cooling infrastructure. Research shows a trend of rising land surface temperatures across all land use types, withurban industrial heat islands suffering the highest temperatures (Aina, et al., 2017).
Whilst the future planned densifications are likely to increase temperatures further, measures are being
implemented to counter this. The King Abdullah Financial District is designed in a way to enable natural cooling.
The shape and positioning of the buildings are designed to block desert winds and provide shelter from sun
resulting in predicted temperatures being up to 10 degrees Celsius (50 Fahrenheit) cooler than other urban areasof the city (Henning Larsen, 2020).
Riyadh is vulnerable to flash-flooding despite being located in a desert climate. Studies on flood vulnerability
suggest that the low-lying central and southern half of the city is the most vulnerable. In the absence of mitigating
measures, densification will likely increase such flood risk (Rahman, et al., 2016)

3. Cities case studies

Saudi Arabia’s smart cities program
Rapid urbanisation is a highlight feature particularly in metropolitan areas such as Riyadh, Dammam, Jeddah and
Makkah, that presently do not meet standards of sustainability. Urbanisation in Saudi Arabia was extremely fast andsignificant during the last five decades; being the third highest in 2000 and expected to continue until 2050 at thesame rate. The goal is to build or develop future cities that achieve all the three essential objectives i.e. personal
satisfaction, financial competitiveness and environmental protection (Advanced Electronics Company , 2018).
In 2017, the Ministry of Municipal and Rural Affairs (MOMRA) launched the nation’s first Smart Cities program. Thisinitiative aims at driving smart transformation in Saudi cities to enter the digital age. 17 cities have been selected comprising about 72% of the Kingdom’s population – to carry out smart urban projects. This effort will be
supplemented by US$ 500bn investment which will be focused on modernising the infrastructure of the existing
285 municipalities across Saudi Arabia (Center for Local Administration, 2019).

Riyadh – the world’s next leading smart city
Riyadh aspires to become the world’s next leading smart city. The city has been moving rapidly to implement Vision
2030 and the National Transformation Program 2020.According to the Ministry of Municipal and Rural Affairs,
Riyadh has reached only 15% of its smart city transformation program (Abdellatif, 2019). Information technology
spending in Saudi Arabia is expected to grow 14% each year (Abdellatif, 2019).

Riyadh on track to become a sustainable city
In November 2019, over 60 international experts concluded a 2-day symposium ‘Riyadh: The Sustainable City’,offering advice and suggestions on the projects that will help transform Riyadh into a world-class sustainable city.
Four wellbeing projects: King Salman Park, Green Riyadh, Riyadh Art and Sports Boulevard are being developed tocover sustainable urban development, conservation, socio-economic wellbeing, cultural nourishment, and thepromotion of a healthier lifestyle for all citizens. They will improve residents’ way of life by providing a greener,
healthier environment and by encouraging participation in cultural and sporting life, in line with the Kingdom’s Vision
2030 (Businesswire, 2019).

39

Cities at risk
Building a resilient future for the world’s urban centres

Case study London

A Lloyd’s emerging risk report3. Cities case studies

40

LondonA highly technological and very strong resilience city. Located at a temperate latitude,
exposed to sea level rise. A densifying city with no informal settlements.

Table 8: London - Key data in 2018
Greater metropolitan area
population

12.4m

Total country GNI per capita$41,770

Total country GDP$2,855bn

Total city GDP$990bnGlobal city GDP@Risk$8bn

City top threats

GDP@Risk

Scenario costs– Extreme loss

Market crash$1.8bn$182bnFlood$1.6bn$506bnCyber$1.4bn$197bnLondon City Resilience Strategy
2020

Sources: City risk index, 2018; OECD.stat, 2018; World Bank,2020

Representative of global cities around the world,
London is a nationally dominant metropolis in termsof population, employment and GDP. London has the10th highest GDP@Risk from Finance, Economics andTrade, with New York, Sao Paolo and Moscow
making up the top three. Of these, London’s risk
profile is most similar to another global market city New York- where Finance, Economics and Tradeaccounts for over 29% of GDP@Risk.
Economic differences between London and the restof the UK are reflected in higher average incomes
and areas of particularly high house prices. London,
like New York, faces the challenge of housing
shortages and unaffordability. London is a smart city
leader, highly connected internationally with welldeveloped infrastructure and services. This includes
extensive digital connectivity generating large
volumes of user data and enabling disruptive
technologies, and new ways of working andtravelling.

The London City Resilience Strategy 2020 takes abroad and long view of what city resilience means, byconsidering immediate risks and looking at a wider
range of shocks and stresses to determine how best
to respond to them. The aim of the strategy is to lookat the long-term shocks and stresses that are likely toaffect the material wellbeing of the city between now
and 2050.
−

Shocks: sudden impact events that can
immediately disrupt a city and may have wideranging and unexpected impacts (e.g. terror
attack, flooding, cyber-attack, infrastructure
failure, disease pandemic)−

Stresses: chronic issues that weaken the fabric ofa city and can eventually lead to a major shock(e.g. inequality, poor air quality, food insecurity).

This strategy identifies three cross-cutting
opportunities that will make London a more resilientcity. These resilience opportunities should not beviewed in isolation, as they are interconnected.
−

Resilience for People: Building resilience forLondon’s Communities−

Resilience for Place: Developing resilience forLondon’s physical environment and infrastructure−

Resilience for Process: Designing resilience into
governance

The strategy outlines projects that are aimed atbuilding resilience to one or more risks. Each projectdescription explain why the work should beundertaken, identifies key shocks and stresses, andthe resilience value of completing the project (Greater
London Authority, 2020).

3. Cities case studies

41

What is changing?
The growing young working age population in London is driving densification of the urban centre in much the same
way as many major metropolises around the world, although the impacts of the post COVID-19 economy may
reduce the attractiveness and necessity of inner urban living.
As at end 2019 there were 541 tall buildings in the pipeline across London, 90% of which were predominantly
residential (New London Architecture, 2019). A number of these developments are in locations with the greatest
flood risk, such as the Greenwich Peninsula and other areas along the River Thames in East London.
Off-site and modular buildings are a growing trend (WPI Economics, 2017) and increasingly seen as making animportant contribution to London’s future house building (Pinoncely & Belcher, 2018). In fact, London will be hometo the world’s tallest modular building completing in South London in early 2020 (Lane, 2019).
Rooftop developments could become more widespread as the London Plan identifies airspace development as anopportunity for building up to 40,000 new homes in zones 1 and 2 (Architects Journal , 2018). ‘Permitted
Development Rights’ (PDR) legislation is being drafted to allow rooftop, or airspace, development to happen
without the need for planning permission, with echoes of New York’s development approach cited in this report(Building, 2019).
Focus on the future
London’s role in the global financial system, as a leading location for debt and equity raising, pension funds,
overseas Head Offices, insurance, Venture Capital and Private Equity and its large levels of international inward
investment in real estate means London is likely to still be exposed to its main peril Market Crash and other
Finance, Economics and Trade related threats.
However, this exposure may soften proportionally as Technology and Space related threats are likely to grow inimportance with more of London’s economic activity, including Fintech, reliant on digital platforms and data
security.
With the scale of building and densification in riverside areas of London and the large-scale regeneration of theThames Estuary area there is set to be a greater value of assets exposed to flood risk, even if the probability offlooding does not increase.

3. Cities case studies

Infrastructure Resilience
Anytown model
Anytown was elaborated by the London Resilience team to explore cross-sector interdependencies between
infrastructure systems through a series of hypothetical visioning exercises. The project raised awareness of theknock-on consequences of infrastructure disruption. It brought together experts and practitioners to discuss theimpacts of disruptions beginning in specified infrastructure sectors (e.g. water), and the potential cascading effects
these could have across other sectors.
−

Phase 1 of the project looked at the potential implications of disruption to electricity and water supply, andmapped out the knock-on effects−

Phase 2 focused on the cascading consequences and interdependencies associated with disruption totelecoms networks and gas supply with scenarios considering infrastructure disruption lasting hours, days,
or weeks.

London Data Innovation
London’s infrastructure networks are interconnected and rely on digital, electrical and physical connections tofunction properly. While an understanding of these interdependencies is critical for short term emergency response
planning, the Greater London Authority is also looking at opportunities for improving how infrastructure providers
incorporate this information into their future-looking investment plans. In particular, the GLA is exploring how
enhanced digital tools and data sharing practices could be used to supplement the decision-support tools that
infrastructure providers already use, so that investments are targeted to maximise cross-sector resilience benefits.

London Climate Change Partnership
The London Climate Change Partnership (LCCP) gathers public, private and community sector organisations to
exchange expertise on climate change adaptation and resilience to extreme weather in London. LCCP works toincrease climate resilience within and between sectors in London. The partnership is driving awareness and action
on climate change so that London can remain a great place to live, work, visit. The group is currently working on
projects:−

Climate Change Adaptation Indicators for London: London Environment Strategy calls upon LCCP to workwith stakeholders across sectors to identify, develop, and monitor a set of climate change adaptation
indicators for London. Such indicators would aim to provide a systematic collection of data about observed
weather conditions, impacts experienced by different sectors of society, and interventions taken to prepare
for, respond to, and recover from climate-related risks.

−

Food Security and Climate Change: Food security has been identified in 2017 as a top priority for the UK. In
partnership with the London Food Board, LCCP organised a roundtable discussion to explore the issue,
understand how it can affect London, and work out what needs to happen at different levels of decisionmaking to ensure the resilience of the city, food-wise.

−

Climate Just: LCCP helped produce Climate Just, an online resource that helps practitioners in Englanddevelop socially just responses to climate change. LCCP is working with partners across London to map
social vulnerability to climate change and address it through targeted adaptation interventions.

42

Cities at risk
Building a resilient future for the world’s urban centres

4. R
 isks and nexuses

A Lloyd’s emerging risk report

4. Risks and nexuses

43

4. Risks and nexuses

Following the four trends presented in section 2 andthe seven cities analysed in section 3, this section
focuses on four risk areas affecting cities.
Figure 8: Four risk areas affecting cities

Finance,economics
and trade

Geopolitics
and society

Technology
and space

Naturalcatastropheand climate

As the report takes a system of systems approach tocities, this section is exploring how those systems
interact with one another and how the nodal points of
those interactions may be compromised by risk
events.
Such risk event factors have the potential to
adversely impact multiple critical elements of a city’s
operations, its ability to provide positive outcomes for
its inhabitants and ultimately its economic ability togenerate GDP.
Finally, this section also looks at insurance products
offered by Lloyd’s that enable cities to treat andtransfer risks.

“Many cities all over the world
are grossly unprepared for themultidimensional challenges
associated with urbanisation”(UN-Habitat, 2016)

Cities at risk
Building a resilient future for the world’s urban centres

Geopolitics and society

A Lloyd’s emerging risk report

4. Risks and nexuses

44

Geopolitics
and society

Geopolitics and society
The current political climate is one of significant
uncertainty and tension. Global geopolitical tensions
have raised due to several factors including
competition between the eastern and western
economic powers, increased conflict-driven migrationand technology platforms, social media and so-called‘fake news’ being used to influence national policy
debates. With all these concerns, it is not a surprisethat cities are facing some repercussions.
Metropolises represent the economic, cultural andsocial heart of a nation and are the symbols of acountry’s standing in the world. They are often used
and targeted by protestors to demonstrate theirdisaffection or to raise concerns. Against thisbackdrop the perils of social unrest, political
dislocation, trade wars and terrorism are on the rise.
These multiple sources of uncertainty increase risks
and might deter long-term investment. Such trends
place assets at risk and negatively impact trade flows
and GDP. Lloyd’s City Risk Index analysis also foundthat geopolitical and security risks – interstate
conflict, civil conflict and social unrest, terrorism –have an estimated annual impact of $133 billion
globally.

Insurance solutions
Political risk insurance covers losses arising fromphysical damage – for example, following a war,
terrorist incident or riot – and business interruption.
Political risk insurance also covers financial lines –the loss of earnings due to credit restrictions being
imposed, and the expropriation of assets by a publicbody, for example.
Political risk often prevents international businesses
from investing in a new market and can also lead tobusinesses reducing or withdrawing theirinvestment. In part, this is because political risk has
a high (and hard to quantify) cost and isunpredictable.
Political risk will always have a detrimental effect onforeign direct investment and the wider economy.
However, improved data and access to insurance
solutions may allow for investments to occur which
benefit both the business and the local economy.
(Lloyd's City Risk Index, 2018)

Resource availability
Increased populations, energy use and irrigation forfood production are the most significant factors for
emerging water shortages. In the US, up to 96 out of
the 204 freshwater basins are projected to faceshortages (Brown, et al., 2019). These shortages areconcentrated in the middle and southern Great
Plains, the Southwest, and much of California where
cities’ reliance on groundwater pumping at levels
beyond natural replenishment is already becoming
more frequent (Brown, et al., 2019). Water shortages
in the US are reported to be increasing conflicts
between different industries (Brown, et al., 2019).
Research has found that as shortages become morecommon and severe, users in high‐value areas incities, such as industrial and energy sectors, havebeen securing additional supply at the expense oflower‐value sectors such as agriculture. This in turnraises concerns about food security, with theagriculture sector coming to rely on fast
improvements to irrigation efficiency beyond thecurrent pace of technological advances as well as
moving away from low-value crops (Brown, et al.,2019). As economic activity must change in response
to water scarcity, or cities no longer become viable
places to live and work, the risk of stranded assets
will rise. This is a global threat as well as a US one.
Indeed, droughts affect cities’ economies. A study
looking at 78 cities in Latin America highlighted how
droughts can significantly harm the economic
activities of large metropolitan areas. It suggested
that the magnitude of the impact of droughts issignificantly larger than the impact of wet shocks,
such as floods. Large sustained dry events decrease
the probability of being employed, hourly wages,
hours worked and labour incomes. Informal workers
are the most impacted by droughts (Desbureaux &Rodella, 2018).
Example: London
Water supply is set to become a more important
issue as water demand in London is forecast to
exceed supply during the next ten years with severe
water shortages possible by 2040 (Buckle, 2016). As
London experiences less rainfall than in the past,water supplies are therefore under pressure, and thisis before considering population growth (Ritter,2018). The water utility companies in London arelikely to come under increasing pressure to prevent
leaks and stop sewerage overflows as well as
potentially having to buy land to develop morestorage reservoirs to service London.

4. Risks and nexuses

45

Riot & civil unrest
Insecurity and risk undermine the long-termsustainability of cities worldwide. With civil unrest,
riots, crime and violence, insecurity in cities is rising.
They are the consequences of recent social, politicaland geopolitical phenomenon. Protests against
actual political context, climate inaction, social andeconomic inequalities, lack of democracy andresources scarcities are becoming more common incities around the world.

“Cities are being targeted assites for the confrontation of
opposing powers, regimes andideologies”.
Lloyd’s report Political Violence found that a
combination of autocratic governments, highproportions of young people in populations andgrowing internet use should be monitored to identify
where and when civil unrest might take place. Other
factors, such as economic slowdown, financial crises
and commodity price fluctuations should also bemonitored (Lloyd's, 2016).
War itself is now being urbanised, with cities being
targeted as sites for confrontation between opposing
powers, regimes and ideologies. Militarisation is seen
as being necessary to thwart civil disobedience andconsequently greater limits have been placed onprotests and violent measures are more often used
to sanction demonstrators. Urban crime and violence
can be detrimental to economic development byimpeding foreign investment and negatively
impacting international tourism.
Example: Johannesburg
On the streets of Johannesburg, social unrest is
taking the form of demonstrations and violencetargeted towards immigrants from elsewhere in SubSaharan Africa. Growing resentment of recently
arrived migrants and perceptions of them taking jobs
from the indigenous population poses risks toeconomic activity with foreign owned businesses andshops being attacked. This risk is likely to increase as
more GDP creation is concentrated in Johannesburg
meaning it will continue to be a magnet for migrants
from around the African continent (Powel & Cassim,
2018).

Nexus – Climate change and migration
Climate change and economic situations can impact
migration flows. Factors driving migration are
multifaceted and as much a product of sustained
and chronic underinvestment in rural areas as jobs,
international migration, or the pull of an urban life.
Climate change has an impact on human migration,with millions of people displaced by shoreline
erosion, coastal flooding and agricultural disruption.
Climate refugees are likely to be 200 million by 2050
(International Organization for Migration, 2008).
The meteorological impact of climate change can bedivided into two distinct drivers of migration; climate
processes such as sea-level rise, salinisation ofagricultural land, desertification and growing water
scarcity, and climate events such as flooding, storms
and glacial lake outburst floods. But non-climate
drivers, such as government policy, population
growth and community-level resilience to natural
disaster, are also important. All contribute to thedegree of vulnerability people experience(International Organization for Migration, 2008).

Implications for risk managers
A prudent risk manager might want to compare
what they spend on insurance for political risks towhat they spend on covering geophysical threats inthese highly exposed cities. It is usually possible toexpand terrorism and political violence coverage toinclude, for example, organised crime coverage.
Risk managers should also consider the impact ofcivil disturbance on sales and operations. In somecases, their operations may be a target; goods andservices could also be boycotted through a social
media campaign and steps should be taken to
demonstrate the social value of their investment.
Even if specific investments are not targeted,businesses should consider possible routes or
focus points for demonstrations. Can employees
get to work, can goods be shipped? Is insurance
cover in place for interruption to operations?
(Lloyd's City Risk Index, 2018)

4. Risks and nexuses

46

Terrorism
Cities are on the frontline of 21st century terrorism.
They are increasingly becoming targets as they
provide high levels of visibility and impact as a resultof their social, political, and economic centrality. Highconcentrations of people and complex infrastructure
leave cities vulnerable to potentially devastating
attacks. Social and political trends influenceterrorism and current political climate tension has
seen terrorism on the rise. The rise of extremist
ideologies, nationalism and protectionism have raised
global geopolitical tensions and increased thenumber of terrorist attacks against a more liberal
world (and neoliberal). Social change and a more
liberal outlook in maturing cities make them more of atarget for terrorists, who may be better able tocoordinate activity through technology and to exploitsocial unrest. Traditionalism is exposed to liberalism
in cities; innovation and development make cities
more of a fertile environment for terrorists.
As the threat of terrorism has increased over the
past two decades, cities have risen to the challenge.
They have invested in smart infrastructure,
unobtrusive adaptions and have reinforced theexisting building structures to minimise risk.
Terrorism prevention and suppression will likely rely
on more complex technology, meaning cities are
more vulnerable if this technology is disabled throughcyber-attack or energy blackout.

“Social change and a more
liberal outlook in maturing
cities make them more of atarget for terrorists”.
The City Risk Index identifies the largest andfrequent losses cities face. Businesses in cities withconcentrations of high value assets, such as New
York, London and Paris, will lose more than emerging
cities in terms of direct and indirect losses on anannual basis. One-off costs can be very high.
Although New York does not feature in the top 10
cities that stand to lose the most from terrorism
annually, a single extreme terrorist event in the city
could lead to losses of up to $102.69 billion (Lloyd's
City Risk Index, 2018).
Example: Riyadh
Geopolitics and Security is the major area of threatthat Riyadh is facing and is unlikely to become any
less relevant. Potential increases in citizen-led
pressure for social reform comes at a time whensocial protests and demonstrations are still banned.

According to the Ministry of Economy and Planning,
Riyadh’s and Saudi Arabia’s economy aim atdiversifying and moving away from fossil fueldependency to develop a more externally focusedand sustainable growth. Rather than face internalpressure to reform, there is the risk of domesticpressure against doing so.
For example, liberalisation of alcohol sales was
greeted by protests in 2019 by those opposed to thereforms (Toumi, 2019). New infrastructure and urban
developments could become a higher profile target
for terrorism. The increasingly fraught regional
political environment is part of this risk with conflict
between Shia majority and Sunni majority states apotential cause of terrorism or interstate conflict.

Counter Terrorism
Preparedness Network
In June 2018, the cities of Barcelona, Greater
Manchester, London, Paris, Rotterdam andStockholm came together to discuss the challenges
and priorities associated with terrorism in theircities. They recognised that the stresses andchallenges caused by attacks were shared acrosscities in a way that doesn’t always affect nations,and so that much could be learned from each other.
The network was established to promote dialogue,
the sharing of practices and experiences, and as ameans of developing new approaches to counter
terrorism, as well as, as the strategic preparedness
and response arrangements of cities in this context.
The mission of the Counter Terrorism Preparedness
network is to bring together strategic leaders,
practitioners and academics to inform city-level
policies and practices that build resilience to keep
cities and communities safe from terrorism (Counter
Terrorism Preparedness Network, 2019).

4. Risks and nexuses

Opportunities and challenges for insurers
The loss of property, infrastructure, communication
connectivity and trade has resulted in the rise of
terrorism insurance. However, as threats evolve andtake different forms buyers are seeking to expand
terrorism definitions in insurance coverage. Terrorism
attacks are changing in scope, goal and format. Withcyber-attacks and social disruption having thepotential to cause major disruption they must also be
considered significant threats in addition toestablished forms of terrorism.
The Lloyd’s market provides support to face theimpacts of political unrest. However, as the form of
disruption is changing, insurers should look at thecover they offer and tailor them to this new world.

47

Insurance solutions
The Lloyd’s market has been a pioneer in thedevelopment of political risk cover. Following therise of expropriation, nationalisation andconfiscation in the 1960s and 70s, Lloyd’s
syndicates took the lead in establishing political risk
cover which, until then, had been limited to the
public sector. Lloyd’s paid billions in claims following
the 9/11 terror attacks (Lloyd's City Risk Index,2018).
Most recently, there has been a trend towards ‘lone
wolf’ terrorist attacks where a single or small groupof terrorists, often armed with knives, have beenable to cause considerable loss of life anddisruption to a city’s economy.

How is terrorism coverage
evolving?
In the UK, Pool Re provides terrorism insurance toinsurers to enable them to mitigate risk. Essentially,reinsurance can limit the amount of loss an insurer
can potentially suffer.
The gap in insurance coverage was highlighted in
the 2017 attacks in Manchester and London Bridge,
where small and medium-sized businesses wereshown to be particularly vulnerable, with several
caught behind police cordons or experiencing a
reduction in footfall following the events. In the caseof Borough Market, over 150 small business owners
together lost at least £1.54 million over 11 days of
disruption (Pool Re, 2019).
In February 2019, Pool Re’s founding legislation haschanged, allowing them to reinsure businessinterruption losses arising from a terror attack
which are not contingent on damage to property.
The amendment made Pool Re the first terrorism
pool worldwide to extend its cover to include NonDamage Business Interruption – Denial of Access or
Loss of Attraction losses.

Traditionally, insurance has covered businesses thathave been directly damaged by terrorism, for both
physical damage and business interruption.
However, recent terrorist events in Australia, France
and the UK have demonstrated that it is not only
businesses that suffer direct losses that are
impacted. If a business finds itself in the vicinity ofan event, or even behind crime-scene cordons, they
can suffer substantial losses even if they are notdirectly harmed.
Insurers in the Lloyd’s market are taking the lead in
finding insurance solutions to this issue. Beazley,
Hiscox and Talbot are among those that havedeveloped terrorism cover as a standalone policy, oras an add-on to property insurance cover, for denialof access to compensate businesses that end up
behind a police cordon, and loss of attraction cover
to insure against lost earnings.
Business interruption cover is particularly attractive
to companies in the hospitality industry, as, typically,
room rates fall after a terrorist incident (Lloyd's City
Risk Index, 2018).
Lloyd’s Product Innovation Facility has developed aparametric solution targeting the hotel industry. The
solution is led by Tokio Marine Kiln, with Facility
members Chaucer, Munich Re Syndicate, Beazley,
Faraday, and AXIS offering additional support. The
product leverages a parametric trigger structure toensure rapid payout post-event against lost profits
which could occur as a result of unexpected events.
This includes terrorist attacks which can result inless tourism and a loss of revenue for hotels (Gallin,2019).

4. Risks and nexuses

48

Pollution risks

Pandemic risks

In May 2016, the World Health Organization (WHO)reported that more than 80% of urban areas havelevels of air pollution higher than the limits it
recommends for health reasons (Notman, 2017).

Based on the interviews in February, several cities
raised pandemics as a major risk. Cities gather
people together which has serious implications forpandemic risks as denser populations are more at
risk of spreading illness due to proximity. In addition,
public transport, public spaces and multiple
occupancy buildings all increase the likelihood of
diseases spreading. Rapid growth and the globalised,highly interconnected nature of cities have added
new levels of urban health risks. The spread of
disease in cities often occurs as a result of
inadequate infrastructure and services. Highincidence of traffic fatalities, air pollution related
respiratory infections and premature deaths can be
related to inadequate urban infrastructure.

The transport sector is responsible for a large
proportion of urban air pollution. Higher urban air
pollution concentrations increase the risk for
cardiovascular and respiratory disease, cancer andadverse birth outcomes, and also are associated withhigher death rates (World Health Organization,2020).
Example: New YorkTo reduce air pollution, local authorities have
implemented a new policy in New York. One of thebiggest changes facing building developers andowners will be the implications of the Climate
Mobilization Act (CMA) passed by New York City
authorities in April 2019. The new regulation setsemissions caps and energy efficiency measures forthe more than 50,000 buildings over 25,000 sq. ft.
The target to reduce emissions from buildings by
10% compared to 2005 and to ban new all-glass
fronted buildings could affect the value ofcollateralised Air Rights if the costs of pencil towers
increases (St. John, 2019).
Example: Shanghai
Despite recent significant investment in renewableenergy and the remediation of natural infrastructure,
driven mainly by central state government, Shanghai,
like much of China suffers from significant levels ofpollution. A recent study estimated that the country’s
greenhouse gas emissions will not peak until 2025,
though this is five years earlier than originallytargeted (SEEC Group, 2015). The World HealthOrganisation claims that by 2025, air pollution will
result in more than one million lung cancer patients
across the country. A report in 2013 identified thatthe number of cases was rising 26.9% year on year
(SEEC Group, 2015). According to the China
Academy of Environmental Planning, it will be 2030
before water, soil and air pollution levels can be
regarded as consistently safe (SEEC Group, 2015).
Example: Fly-tipping in cities
Illegal dumping of waste is on the rise in cities. Fromfridges on street corners to furniture in car parks andmountains of rubbish bags dotted across town, thisphenomenon is increasing in the world (Perry, 2016).
Between 2014-2015, England had more than 40% ofincidents taking place in London (Perry, 2016). These
incidents cost British taxpayers £58 million to cleanup (Green Journal, 2018).

The growth of informal settlements has ademonstrably adverse impact on human health. The
structural and socio-economic features of suchinformal settlements suggest the threat of infectious
disease will increase as these populations grow.
Rapid urbanisation will continue to increase the riskof infectious diseases emerging more frequently andseverely in metropolitan areas.
The spectre of similar negative health externalities isalso present in developed economies. The
homelessness crisis experienced in London isreflected and growing in many other global cities,
raising the risk of a return of perils once considered athing of the past. Infectious diseases such as typhus
and measles have occurred in California, first among
the growing homeless population and then to thewider urban community. Such instances impact on
public service delivery and on the urban economy
and suggest a threat which could impact on
workplaces and high-value economic clusters.
One possible consequence of the current pandemic
is its impact on urban planning in the future. One key
consideration is now striking the right balance on
population density between economic growth andmaintaining public health.
Example: Johannesburg
The Johannesburg metropolitan area population is
growing but the prevalence of HIV amongst the
young population is a major risk to this population
increase. With around 600,000 people in the city
living with HIV, the scale of the epidemic is larger
than any other city in the world (World Bank, 2016).

Cities at risk
Building a resilient future for the world’s urban centres

Natural catastrophe and climate

A Lloyd’s emerging risk report

4. Risks and nexuses

49

Naturalcatastrophe andclimateNatural catastrophe and climate
Cities are dealing with the pressures of climatechange, facing the top five hazards due to global
warming (surface flooding, heat waves, rainstorms,
extreme hot days and droughts) (CDP, 2019). As
cities continue to spread, concentrations of urban
populations will expose more people, their homes
and places of work to the established and growing
threats related to climate change. With thedensification of people and property continuing inareas of potential vulnerability and on newly
urbanised compromised land, it is these mostrecently urbanised communities that will be at mostrisk.
Cities are also playing a crucial role in trying to lower
the impact of climate change. Indeed, the mostambitious decarbonisation initiatives are at the city leveland generally speaking cities have lower energy use
per capita than less densely populated areas.
Recognising that urban environments play a role ishelping to reduce emissions and the need to havegreener cities is important.

Insurance solutions
Special catastrophe insurance is available for
specific natural disasters, such as flood insurance,storm insurance for hurricanes and tornadoes,
earthquake insurance, and volcano insurance.
In 2015, Lloyd’s created the Disaster Risk Facility
group gathering seven Lloyd’s syndicates to help
developing economies build resilience against
natural catastrophes. Lloyd’s syndicates are joining
forces to help developing economies tackle
underinsurance and improve their resilience against
the economic impact of natural catastrophes.

Flooding risks
Coastal cities face a high risk from increasingly
costly flooding as sea levels rise due to climatechange. A new study looking at cities around theworld found out that the cost of damage to large
coastal cities globally could rise to $1 trillion a year if
cities don’t take steps to adapt. It also encouraged
early action and warned that some of the cities
where flooding will increase the most in the coming
years are not the cities where the risk is particularlyhigh today (World Bank, 2013).
Example: Shanghai
Tropical winds and floods are dominant perils facing
Shanghai. The foundations of central Shanghai arebeing compromised by continued exploitation ofunderground water as well as the construction of
skyscrapers in its densifying core. The physicaldensification of Shanghai’s urban core is likely toplace geological pressures on the ability of the landto support the city’s weight. This trend will present agreater insurance risk to build assets in the future as
melting polar ice caps are projected to increase thelevel of Shanghai’s coastal waters by between 9 and
27 inches by 2050 (SEEC Group, 2015).
The city needs to develop a resilient infrastructure
proposition in the face of rising sea levels and thechallenges of a changing climate.
Example: New YorkNew York is exposed to the risks of climate change
through sea level rise and increasing temperatures.
The city is at risk of flooding.
The Metropolitan Transportation Authority isplanning to raise up to $60 billion of capital
investment to modernise the subway over the next 10
years (EY, 2019) potentially resulting in over 3,500
new subway cars, elevators at 180 stations andnearly 5,000 new buses (Matousek, 2018). Currently
an average of 13 million gallons of water has to bepumped out of the subway system multiple times aweek (Gannon, 2018) rendering the systemvulnerable to flooding as seen in 2018. Whilst
improved stations and flood defences are intended tomitigate against flooding the effects of climatechange could still potentially increase the risk to new
subway infrastructure (Meyer, 2017).

4. Risks and nexuses

50

Hurricane risks
As the world’s population becomes increasingly
concentrated in cities, they are witnessing theurbanisation of disasters. Hurricanes Florence, Mariaand Irma all underscore urban risk. Cities are reacting
and are trying to prepare to face these upcoming
challenges.

“Disaster response, experts
have begun utilising nontraditional data sources toassist with planning” (Green,2020).
Example: Miami
Miami is well known for the risk it faces from coastal
flooding and hurricanes. The city is becoming
increasingly vulnerable to extreme weather disasters,such as Hurricane Irma, and climate threats, such assea level rise (Garfield, 2017). Continuing urbanisationand population growth are set to put more strain on
infrastructure and housing supply in the city and tofurther render business and built assets in areas
vulnerable to flooding and hurricanes.
In recent years, the city has been preparing by
elevating its roads, re-building its seawall, installing
more pump stations, and improving its drainage
systems. To raise the roads the city is implementing
traffic detours, removing existing pavements,
replacing old water lines, drainage and sewer lines,
and adding more asphalt to make the streets higher.
Miami is mandating the construction of new buildings
to be constructed 1.5 meters above current sea levels(Garfield, 2017).
The probability of future substantial insurance loss toasset values and business disruption of hurricanes
and flooding depends on the success of flood
protection measures in existing neighbourhoods andnew buildings as well as on the scale of the impactsof climate change.

Waterfront Alliance
In 2012, Hurricane Sandy ravaged the New York
City metropolitan region along with the entire East
Coast of the United States. It was a wake-up call forthe potential of not only future storms, but the
impact that sea level rise poses to the region’s
people, economy, environment, and overall longterm viability in which one million people are at riskof flooding today and rising.
Catalysed by the need to act on reducing regionalrisks to climate, the non-profit organization
Waterfront Alliance developed a LEED®-like rating
system for waterfront projects that builds resilienceat the site scale (WEDG®), and has worked withstakeholders to build consensus and a campaign(Rise to Resilience) for the changes needed toadapt the region. Diverse stakeholders ranging fromgrassroots advocates to government officials, tobusiness experts including Lloyd’s have identified asuite of policies, investments, and programmaticchanges that will better prepare the region for therisks it faces. Key proposals, among others, are to:−

Reform FEMA and the National Flood Insurance
Program to better incorporate future risks,
reduce vulnerability, and prioritise low- andmoderate-income communities.

−

Develop long term funding sources for building
resilience to sea level rise and coastal storms−

Develop flood-risk disclosure regulations andpublic awareness campaigns to better informbuyers and renters of property risk.

−

Support an equitable and just transition throughinvestments in affordable and public housing
options in safe, transit-connected communities
on higher ground and workforce development
opportunities.

−

Invest in habitat restoration and green
infrastructure, prioritising environmental justicecommunities for multiple benefits.

The Rising to Resilience campaign will advocate forthese proposals, among others, building publicawareness and seeking policy action at federal,state, and local levels and better prepare the region
for climate change.

4. Risks and nexuses

51

Earthquake risks
Earthquakes affect every continent and certain areas
are especially prone. They can cause devastating
damage and large numbers of casualties very quickly.
According to the Centre for Research on the
Epidemiology of Disasters (CRED), more people
worldwide are moving into urban areas in highly
seismic zones, contributing to the number and size of
informal settlements that are extremely vulnerable in
the event of an earthquake (Giles, 2017).
Example: Mexico CityIn 1985, Mexico City region was shaken by a serious
earthquake. More than 360 people died, 150 to 200
buildings were destroyed, and more than 3,000 otherstructures were damaged. Mexicans endured theviolent earthquake and its damage and decided toact rather than retreat (100 Resilient Cities, 2017).
Mexico’s recovery and resilience-building efforts
remain a central challenge for years to come. Mexico
City’s Resilience Agency oversees disaster
preparedness and integrating community planning toensure the city’s future (100 Resilient Cities, 2017).
In 1991, Mexico City’s created an early warning
messaging and information system. The system isfollowing a specific procedure: special radio
receivers in schools, government offices, and TV andradio stations receive radio broadcast alerts thatprovide warning of imminent shaking. From its
inception through to September 2017, the system
issued a total of 33 alerts. Public opinion regarding
this procedure is generally positive. People appeared
to see value in having an alert system (Allen, et al.,2018).

Insurance solutions
Property Damage policies indemnify the insured in
the event of damage to the physical or material
assets of the business. The main items insured arebuildings, machinery and plant, stock and othercontents. A range of policies are available including
fire and special perils, commercial all risks, theft,
glass, money, goods in transit.
Business Interruption insurance (BI) is also known
as time loss, consequential loss and loss of profits
insurance. It provides cover for the financial losses
due to an interruption to a business caused bymaterial damage to property.

Instant claims for earthquake
damageIn earthquake-prone California, 87% of homeowners
don’t have insurance because it is considered
unaffordable.
Underwriters at Lloyd’s are addressing this byunderwriting parametric insurance in partnershipwith retail broker Jumpstart, based in Oakland,
California, and coverholder AmWINS. Jumpstartoffers a new, more affordable and more accessible
alternative to traditional earthquake insurance.
There are several benefits for customers: thebuying process is fully automated, claims payments
are automatic and since there is no need for a loss
adjuster’s assessment, funds can be released in amatter of days. Jumpstart’s policy does not pay for
all the damage to customers’ property caused by anearthquake but pays $10,000 to each policyholder
quickly to cover their immediate costs post disaster(Lloyd's, 2019).

4. Risks and nexuses

52

Heat waves risks
Across the globe, hot days are getting hotter andmore frequent. National Climate Assessment
estimates 20-30 more days over 90 degrees F
annually in most areas by the middle of the century(Centre for climate and energy solutions, 2019). In
June – July 2019 Europe experienced unprecedented
temperatures in the UK, Netherlands, Belgium andGermany. According to the World Weather
Attribution network these extreme temperatures
would be the fingerprint of climate change (Dunne,2019).
Extreme temperatures are the cause of excess
morbidity and mortality in our societies. Extreme heatcan increase the risk of other type of disasters suchas drought and, wildfire conditions (Centre forclimate and energy solutions, 2019).
Example: Extrema.SpaceAn emergency notification system for extreme
temperatures has been developed for cities. The
Extrema mobile app spots in real time the city areasthat are likely to suffer most during the ongoing
event, indicating where the victims are to be
expected. Extrema uses real-time satellite data, cityspecific data to estimate the temperature, humidity,
and discomfort index for every square kilometre in
the city. The app localises cooling spots, access towater points and shares good practice. Athens,
Rotterdam, Paris, Mallorca and Milan are alreadyusing the mobile app (Extrema, 2018).

Nexus – Infrastructure and climatechangeUrban areas cannot function effectively withoutlayers of infrastructure. This infrastructure ranges
from what may have once been viewed as basic
utilities such as water, power and connectivity
through to multi-faceted, multi-modal areas such as
effective integrated public transport. Due tochanging technological, social and spatial factors
many cities’ infrastructure systems are struggling tocope as they are used in ways that were neverimagined during their design. With global warming,the energy demand is globally increasing as new
systems like cooling infrastructure are implemented
massively to face high temperatures
The clustering of assets, services, people andopportunity ensures that cities are efficient and can
produce more effectively. The risk is the fact that incities with highly clustered assets single events can
now cause far more damage.
Building effective infrastructure requires acompelling use case. Insurance can help provide agreat deal of certainty by offering cover against
various risks that threaten projects. In fact, many
government projects around the world demand suchcoverage before projects can move forward.
With climate change, and the increase of extreme
weather events, it is going to be increasingly
important to create building codes that are robust toboth current and future risks. Engineering studies
will be necessary to achieve this since past data will
not always be a good guide to the future. New tools
to face flooding or earthquake-resistantconstruction for example could be developed.
Failing infrastructure exposes citizens to fresh
threats, ranging from health concerns from watersupplies to catastrophic harm and disruption when
physical infrastructure collapses.

4. Risks and nexuses

53

How are cities reacting to natural
catastrophes risks?
Cities are developing risk management strategies toassess risks and try to reduce their impacts. The
Urban Risk assessment (URA) is a framework
created by the World Bank that seeks to strengthen
coherence and consensus in how cities can plan for
natural disasters and climate change. Local
authorities can plan and respond better if the locationand nature of risk is known, and also if risk
assessment and management is mainstreamed inurban development and management programs. Risk
assessment needs to be undertaken at regularintervals so that the city governments can evaluate
progress toward reducing risk and vulnerability(Dickson, et al., 2012).

ICLEI - Local Government for
Sustainability
ICLEI - Local Government for Sustainability is a
global network of more than 1,750 local and regional
governments committed to sustainable urban
development. ICLEI looks at sustainability andmakes it an integral part of urban development tocreate change in urban areas through practicalsolutions. The aim of the organisation is to help
cities of all sizes to anticipate and respond tocomplex challenges like rapid urbanisation andclimate change (ICLEI, 2019).
The ICLEI Urban Resilience Methodology supports
cities and communities to understand the major
challenges, shocks and stresses which may impede
secure, sustainable development and to develop
strategies to build resilience to these challenges.
The Cycle is aligned with ICLEI’s Green Climate
Cities and Nature Pathway planning cycles and isoffered as a systematic and achievable way for
cities and communities to plan and act. It is a 9-stepprocess in 3 phases: 1) Analyze - assess urban risks
and vulnerabilities; 2) Act - develop and implement
options to build resilience to these risks to ensure acity can achieve its sustainable development goals;
and 3) Accelerate - scale up this activity and to linkwith national and international networks, campaigns
and initiatives (Resilient Cities 2019, 2019) .

Insurance Industry Development
Goals for Cities
In 2018, the Insurance Industry Development Goals
for Cities, launched at the ICLEI World Congress in
2018, released 10 goals designed to help theinsurance industry to respond to the growing threatof extreme weather events, air pollution, and theneed to promote clean energy, healthy living, andclimate resilience. The Goals provide a global
framework to guide collaboration between insurers
and local governments to accelerate climate action.
The Insurance Industry Development Goals for
Cities serve as a global action framework for the
insurance industry to make cities inclusive, safe,
resilient and environmentally sustainable(Wentworth, 2018).

Cities at risk
Building a resilient future for the world’s urban centres

Technology and space

A Lloyd’s emerging risk report

4. Risks and nexuses

54

Technology
and space

Technology and space
Cities generate a vast amount of data. Frommeasuring power demand to the use of public
spaces, urban areas offer insight into the way theircitizens think and act. With the scope of data
expanding year on year its value is increasing both tothe city and private entities who want to use it todrive enterprises, provide services or to support new
business models. However, the scale and complexityof city-sized systems mean that catastrophic
scenarios are a possibility. As cities are becominginterconnected, they rely more on smart technologies
which raise new risks.

Cyber-attacks
A smart city relies on a rich and diverse set of dataflows and a growing volume of sensors, devices andnodes to capture and transmit that data. The
challenge is that every component, device and node
is a possible point of attack. According to Lloyd’s City
Risk Index, cyber risks represents $36.54 billion of
GDP@Risk.
Example: New York
5G will see more data flowing through New York thanever before and will enable faster communications.
The opportunities and impact of 5G are likely to berealised soon with the first 5G network rolled-out in
New York in 2019. New and growing data andcommunications networks will be critical to thedeployment of smart city technology. The 2019 New
York City plan intends to deploy thousands of smart
sensors and a low power wide area network using
blockchain to store and secure data collected fromcity infrastructure assets (SmartCitiesWorld, 2018).
Data security has become a more important issue,
not just for businesses and infrastructure owners but
also for people and service providers. For example, in
April 2019 30 out of the 2,000 open access datasets
were made publicly available by New York City
authorities on a new platform to enable developers tocreate apps using household data such as income
and health to identify household eligibility for
different social benefits (Plautz, 2019). As more data
and the economic activity, it drives is exposed tocyber-attack, continued efforts will be needed tocombat and prevent these threats. Therefore, cybersecurity itself is likely to be a growth sector in New
York with more investment, innovation and job
creation. The $100 million public-private investmentin the CyberNYC initiative is one example of how
New York City is seeking to be a global leader incyber security (NYC EDC, 2019).

Insurance solutions
Lloyd’s offers a range of insurance products for cyberrisks.
Breach response: A Data Breach Response Policy
goes beyond a traditional liability insurance policy. It
also provides a service which helps organisations
manage the aftermath of a breach as well as providing
coverage for the costs of notifying clients, forensic
investigations, credit monitoring for customers, legal
costs and public relations services to help manage any
reputational harm.
Liability: Liability claims from a data breach can be
costly to organisations. This policy provides coveragefor third party claims and associated defence costs
arising out of a data breach.
Regulatory: A data breach can also lead to significant
regulatory fines and penalties. This policy provides
organisations with coverage for the defence costs
associated with regulatory investigations, to the extent
insurable by law.
Extortion: Ransom demands and malicious threats areon the rise. This policy provides coverage for the costs
in relation to restoring the organisation’s affected
systems.
Business Interruption: Cyber incidents can lead tosignificant loss in revenue and bring business
operations to a halt. This policy provides coverage forthe income loss resulting out of interruption to, or
downtime of, an organisation’s IT system. It also
provides assistance in restoring the data, network andIT system.
Reputational Harm: Cyber incidents can havedetrimental effects on an organisation’s reputation
leading to loss of revenue. This policy provides
coverage for financial losses incurred from loss ofcontracts due to a cyber incident.
PCI DSS Assessments and Fines: Organisations
affected by breaches involving payment card data areexposed to PCI related fines and PCI DSS
assessments. This coverage deals with costs relating
to stolen card data, reimbursements of card reissuingcosts and forensic investigations into the extent of themisuse of the card data. (Lloyd's , 2020)

4. Risks and nexuses

55

Ransomware attacks
Cities are finding their infrastructure and networks
now rely on complex online systems. The incentives
to launch ransomware attacks on these networks is
growing. Ransomware is a form of malware thatthreatens to destroy or block access to files unless aransom is paid. Ransomware can hide in carefully
tailored emails that appear to be from a genuine
source. Once a single employee has opened theattachment, a hidden executable code may be able torun on the computer, downloading and spreading theransomware worm.

“The scale and complexity of citysized systems mean thatcatastrophic scenarios are apossibility”.
Cities are already regularly facing small scaleransomware attacks that impact on their networks,
attacking everything from power supplies tohospitals. These can be handled effectively but withthe development of more networked service
provision there is an increased chance that any
attack will spread.

Nexus – Energy and technology
Cities need energy to function and in a growing city
this demand may expand far quicker than its
population. Energy is needed by every stakeholder
of a modern city and an interruption or lack of supply
is rarely a minor issue.
Innovations in city design are also increasing thedemand for energy. As these systems become evermore inter-connected to urban infrastructures they
are exposed to certain weaknesses. These havebeen shown to open cities up to lawsuits whensystems fail. Insurance can help provide reassurance
providing public liability and cover against classaction lawsuits.
However, with major data centres becoming more
and more attractive targets for malicious actors any
new coverage should be contingent on an effective
security strategy.
Automation through robotics and AI also both placedemands on the energy systems and data securityof cities. Companies are looking to ensure that they
can avoid costly periods of down time.
Issues had been known to arise in past blackout
periods. There remains a significant threat if a large
blackout occurs. The 2015 ‘Business Blackout’
report by Lloyd’s looked at a hypothetical cyberattack that caused vast and lasting damage to the
US power grid. This scenario highlighted risks in awide range of areas that could be affected, andcould be used as a framework to explore theimpacts of power outages in cities.

4. Risks and nexuses

56

Box 6: Scenario - Data centre shut-down
In such a scenario the resilience of critical nexus infrastructures such as data centres underpin the ability of the city
- as an urban system of systems to – to perform effectively. Risks to such underpinning infrastructure pose an
existential threat a growing number of different city systems.
Traditionally, the risk of cyber-attack was predominantly faced by the city systems targeted, whether specificorganisations, businesses or service providers. The trends investigated in this report show how data andconnectivity are becoming critical across all city systems. As a result, cyber-attack on a city’s datacentre ortelecoms network no longer impacts just a targeted organisation, it can bring an entire city to a halt. Lack ofconnectivity and lack of access to data can prevent people from ordering their ride home or food, disrupting
automated businesses, and leaving city officials without the data and connectivity needed to manage the city
infrastructure, transport and environment.
Figure 9: Data centre shut-down and impacts on city’s ecosystem

Utilities &services•••

Dark kitchens
Autonomous stores
Digital payments

Retail &consumer

Sensor networks
Security
Proactive and responsive services

Health service apps and facilities
Connected homes and smart energy grids
Financial and government platforms•••

Transport

Connected & autonomous vehicles
On demand travel
Shared-mobility

DatacentrePERIL
e.g. cyber attack

•
•
•

•
•
•

City
management

Business &industry•••

Industrial automation and digitalisation
B2B / B2C AI platforms
Connected supply chainsTo describe the image specifically, it shows the different systems and functions in the city which the data centre
supports. The data centre acts as a nexus risk, as any threat which impacts on the data centre is then radiated out
with secondary impacts on the people and businesses who directly or indirectly rely on the data centre for everyday
activity. In this example the peril shown is an incoming cyber-attack, however energy disruption or flooding are otherpotential threats which would have the same effect if they cause the data centre to shut down.

4. Risks and nexuses

57

Data breach
Cities are becoming a major focal point in the
personal data economy. Cities are collecting datafrom their citizens and there is a clamour for datainformed approaches to everything. This is seen as atriumph for advocates of the better use of data in
how we run cities. However, even if there is a general
acceptance that social, economic and environmentalpressures can be better responded to by harnessing
data, the question regarding how and who can use
this data is central to local authorities. Cities arelooking to develop innovative practices and policies
around the responsible use of data about people(Nesta, 2018).
Data breaches are a key concern. Some of the data
can be used to directly identify individuals and if thisis compromised it can have serious consequences.
This leads to reputational damage, fines from
regulators and the need to improve and alter digital
infrastructure to avoid the event recurring. Insurers
can help through using established forms of cybercoverage. Unfortunately, as these targets become
more valuable there is a chance that breaches may
occur more frequently and could be perpetrated bystate actors. There are currently cases being tested
in court where insurers have argued they are notliable for this cover as it falls under exclusions set out
in the coverage, specifically excluding hostile actions
by other countries. While this may save costs andhelp set a precedent for future claims it does havethe potential to highlight the limits of the cover tocustomers.

“The question regarding how
and who can use data iscentral to local authorities”.
Example: New YorkOn July 2019, New York amended its data security
breach notification law. Governor Andrew Cuomo
signed into law the Stop Hacks and Improve
Electronic Data Security Act (“SHIELD Act”) (Asner,
et al., 2019).
The SHIELD Act represents the latest measure
adopted by New York State officials to broaden the
cybersecurity-related obligations of New Yorkbusinesses. It adds new substantive cybersecurity
requirements for breach prevention purposes (Asner,
et al., 2019).

IoT & Dynamic Pricing
The IoT has the potential to significantly change theunderwriting and pricing models of insurancecompanies. By knowing more about their customers
and assets, insurers can react to risks in a dynamic
way. Thus, the sector is expected by some, to moveaway from a reactive passivity to a proactive
approach that mitigates and even prevents claims.
Methods of calculating losses based on years ofhistoric data may thereby also transform and shift
towards the increasing reliance on sophisticateddata science and predictive techniques.
Advances in technology mean the sector will reacha point where proxies currently used may no longer
be useful or even necessary to understand an
individual’s behaviour and product usage. Thismeans that insurers will be in a better position toassess risk, understand complex exposure (andmanage it), as well as estimate the necessary
capital reserves, making capital calibration more
fluid (Lloyd's, 2018).
By using new sources of data such as Internet ofThings (IoT) devices, insurers may be able to alert
clients to potential losses before they occur, assess
damage in real time, speed up the claims process
and prevent false claims, reduce administration
through automation, and allow more personalised
products and services to be developed (Gasc,
2016), aiding overall response.

Cities at risk
Building a resilient future for the world’s urban centres

Finance, economics and trade

A Lloyd’s emerging risk report

4. Risks and nexuses

58

Finance,economics andtrade

Finance, economics and trade
Economic development is often the most discussed
challenge in local authorities. Mayors cite the manygains in business and job growth in their cities. Moreand more cities are making it easier for
entrepreneurs to start or grow a business. A growing
number of cities are working to unleash the creative
potential of small-scale manufacturing and the makermovement (Rainwater, 2016).
Almost $150 billion a year is at risk in 279 cities
around the world from market crash, commodity
price shock and sovereign default – according to the
Lloyd’s report: Global analysis of finance, economic
and trade risks. The cities which stand to lose most
GDP to financial risk are primarily establishedfinancial centres. This does not mean they are more
likely to experience a market crash, rather that the
impact will be greater, given their importance as
economic hubs (Lloyd's City Risk Index, 2018) .

Market crashMarket crash is the costliest risk in Europe, North
America and Latin America, and the second largest
threat in Asia Pacific. More than two-thirds of US
cities have market crash as their costliest risk, with a
combined cost of $19.9 billion, because of theirreliance on private capital. Although establishedcentres stand to lose the most, every city is exposedto this threat, which can lead to reduced investment
and increased unemployment (Lloyd's City Risk
Index, 2018).
The drivers of market crash are manifold and difficult
to monitor. Currently, the IMF is predicting that the
global economy will continue to grow, albeit at a
slower pace, but economists have indicated anumber of concerns. The Chinese economy, which
has fuelled global expansion, is growing at a slower
pace than previously, which could impact cities witheconomies that import to China (Lloyd's City Risk
Index, 2018).

Insurance solutions
The Lloyd’s market offers a range of insurance
products for finance, economic and trade risks.
Financial guarantee, which insures the policyholder
against a number of trade risks including
bankruptcy, lack of sales and receipts and changes
in currency rates, interest rates, land or securities.
Contract frustration which insures against loss
under a specified contract for the sale, purchase,lease or delivery of assets, goods or services as aresult of a political event or the action of
government.
Trade credit, which covers a business for losses
from the failure of debtors to pay debts.
Currency inconvertibility, which protects against agovernment enacting new currency restrictions.
Business interruption, which covers lost income
from an event which impedes business operations
and event insurance, which covers financial loss asa result of an event being cancelled.

Implications for risk managers
Market crash has multiple implications. Carefulmanagement of slow payments can alert risk
managers to a market downturn and allow
businesses to adjust credit lines. Risk managers
should also have a clear understanding of the legal
implication of a bankruptcy - in particular, wherewould a dispute be resolved?
Market crash can trigger political risks.
Demonstrating clear value to a local community canhelp to prevent a business being targeted by apopulist government or local pressure groups who,in the event of market downturn, may organisedemonstrations to disrupt operations.
Risk managers should consider the value of
insurance in terms of protecting balance sheets,
securing investment and credit management(Lloyd's City Risk Index, 2018).

4. Risks and nexuses

59

Commodity price shock

Sovereign default

One impact of higher commodity prices, particularly
oil, is to raise manufacturing and household costs,
which can lead to inflationary pressures on an
economy. In regional terms, the Lloyd’s City Risk
Index shows Western European cities to be mostvulnerable to this threat. The European Union imports
almost 90% of its crude oil. China and US,
respectively the largest importers of oil, are also
vulnerable to price rises (Lloyd's City Risk Index,2018).

Sovereign default can have several consequences.
Clearly, it can affect any businesses supplying goods
and services - in the energy, construction or
telecommunications sectors, for example, - as well as
national governments. The rise in state-owned
enterprises (SOEs) means that more than a quarterof the world’s largest businesses are now stateowned, adding to the risk of sovereign debt crises.
The City index shows sovereign default will lead tohighest losses in emerging economies (Lloyd's City
Risk Index, 2018).

“The cities most at risk ofcommodity price shock are
manufacturing economies witha high reliance on energy
imports”.

Sovereign debt can also raise the likelihood of
expropriation of assets or forced nationalisation ofindustries. Some indicators - if a government hassigned an agreement with the Multilateral Investment
Guarantee Agency (MIGA), for example - can reduce
the likelihood of expropriation.

Example: Riyadh
Riyadh’s economic change could have contrasting
implications for the peril of market crash. On the one
hand, diversifying away from an oil dominatedeconomy reduces the exposure to commodity
market fluctuations. Meanwhile on the other,
expansion of the financial and service sectors
exposes more economic activity to fluctuations in
those markets.
There is a small but relevant linkage between oil
prices and financial market performance which
results in shortfalls in the national budget in times ofdepressed oil prices. In these instances, investmentsfrom the country’s sovereign wealth fund, the Public
Investment Fund, are liquidated to meet the shortfall.
Such short-term sales will not always realise bestvalue and could, over the longer term, mitigate
abilities to invest in key public infrastructure projects.

The rise in populist policies may also lead to a rise ineconomic nationalism which could increase thethreat of expropriation.

Implications for risk managers
Risk managers, particularly those in the
manufacturing sector with high energy use, should
run scenarios to establish the impact of commodity
price rises.
Understanding the impact of oil price rises on
inflation is critical for companies with highborrowing levels. It is also important to establish theimpact of inflationary pressures on critical trade
partners. Will key customers and suppliers survive arise in interest rates? How might they impact on
supply chains?
Inflation and high prices can also trigger civil unrest,and businesses should review their plans to ensure
the security of employees, assets and operations in
the face of riots and demonstrations (Lloyd's City
Risk Index, 2018).

4. Risks and nexuses

Furthermore, the period leading up to a sovereign
debt default can be characterised by governments
reducing social spending. This can increase thelikelihood of riots, civil conflict or social unrest, which
can disrupt operations and the supply of goods(Lloyd's City Risk Index, 2018).
Example: Johannesburg
Johannesburg’s economic growth and ambitious
development plans are likely to keep the city
exposed to its most significant threat categories in
the City Risk Index; Finance, Economics and Tradeand Geopolitics and Security. A more importantfinancial and real estate sector with increased
foreign investment could leave more economic
activity vulnerable to market crashes.
The conflicting interests of government andinternational investors can be important when
thinking about market threats. Zendai, a Chinese
developer planned to develop Modderfontein New
City on a 1,600-hectare site north-east of
Johannesburg. The developers could not agree toaffordable home targets or the integration of thedevelopment with public transport corridors. The sitehas since been sold and plans scaled back with someanalysts suggesting unexpectedly low demand meant
the original level of investment was unfeasible given
the city’s real estate market (Reboredo & Brill, 2019).
Such market forces could threaten financial returns
on public transport investments, which alongside thegovernment debt arising from the state energy
company is unlikely to reduce the peril of sovereigndefault.

Implications for risk managers
Risk managers should develop strategies to manage
debts of state-owned enterprises and renew thesewhen governments change.
They should also consider how to manage the riskof earnings being trapped in a market or
expropriation of assets. Are guarantees in place?
Are they sufficiently robust to withstand a sovereign
debt crisis in a state with a populist government?
Insurance to mitigate the risk of expropriation is
widely available and should be explored in cities thatare vulnerable to sovereign debt (Lloyd's City Risk
Index, 2018).

60

Nexus – Finance and political risksSome financial lines insurance are classified aspolitical risk - this is usually as a result of civil unrestor protectionism, which can lead to a hostgovernment putting trade barriers in place, such as
making it hard for a foreign-based business to moveassets, or even expropriation and nationalisation ofassets.
At present, economic and political conditions areexacerbating these threats. The International
Monetary Fund (IMF) predicts a gradual slowdown
over the next few years, primarily due to a reductionin Chinese growth. In October 2018, the IMF revised
down its global growth projections for 2018 and2019 by 0.2 percentage points. The IMF expects
growth to slow in the US from 2.9% last year to 2.4%
in 2019, and in China from 6.6% to 6.2%. Rises ininterest rates could also depress growth. Businesses
that financed expansion on low interest rates may
find themselves under pressure.
The rise of populism is changing the way trade isviewed. The belief that global trade is creating
benefits for all, and should therefore be protected bynational governments, is changing. Somegovernments are increasingly taking a morenationalist approach. This was seen most acutely in
2018, with threats (and some tariff measures) in the
US-China trade relationship, which is ongoing at thetime of going to press. Governments in othercountries, including in Europe, have blocked foreignacquisitions of domestic businesses.
This is resulting in an erosion of the rules-based
intergovernmental systems. For example, the World
Trade Organisation (WTO)’s appointment ofarbitration judges is currently blocked by the US and,if this continues, will render the WTO unable tomediate disputes by the end of 2019 (Lloyd's City
Risk Index, 2018). In 2020, Brussels created analliance with 16 countries including China, South
Korea and Brazil to bypass the US block on WTO
judges (Brunsden, 2020)

Cities at risk
Building a resilient future for the world’s urban centres

5. F
 ostering further collaboration

A Lloyd’s emerging risk report5. Fostering further collaboration

61

5. Fostering further collaboration

Potential barriers are preventing further collaboration
between local authorities and insurers. Cities are notalways buying and covering their risks using third
party insurance services. Municipalities are mostly
self-insuring threats they face. Urbanisation provides
opportunities for insurers in part because of cities’
scale and the demand for rapid change as they
develop. Urban areas are a broad market, they tend
to be more affluent and have more assets, people
and liabilities to insure than rural zones. Nevertheless,there is still a long way to go to develop further
interactions between cities and insurers. The Lloyd’s
Innovation team interviewed and met with fourmanaging agents, seven brokers, several local
authorities and global network to understand various
opinions and develop a broader picture of the current
situation. Lloyd’s would recommend the following toensure better collaboration:
1)

Work together for better understanding of
risk. Governments, insurers and otherstakeholders should work together to ensure
there is a greater understanding of the role ofall parties in the economic and social
consequences of poor risk management, andto allow the development of appropriate
solutions (Lloyd's, 2017). The insurance
penetration rate is still very low in mostcountries. The level of understanding
regarding insurance – especially - indeveloping countries is mostly non-existentand customers are not aware of the existing
offers. The knowledge gap about the benefitsof using insurance policies is preventing the
adoption of insurance coverages. The
insurance industry should work to close theknowledge gap in order to increase theinsurance penetration rate.

2) Clarify coverages offered. Insurers noted that
customers are increasingly raising claims thatare not included in the initial cover they were
sold.

Prior to events, insurers should help
customers understand what is covered in thepolicy purchased and what is not included.
Insurers and brokers should also
communicate better with risk managers andmake sure to extend clarity to customers.
3) Clarify how premiums are calculated.
Municipalities are governmental agencies
with budgetary constraints and must plan
their budgets years in advance. As they faceeconomic constraints, they are also usuallyplanning for emergency responses at thesame time. Local authorities are asking forhelp to better understand how pricing works
and how they could mitigate risk bytransferring them. It could create greater
trust and transparency between cities andthe insurance industry. A risk-based pricing
approach could be implemented. Indeed,
where possible prices should be based on thelevel of risk, free from regulatoryinterventions.
4) Work on cultural barriers. Historically,municipalities have mainly self-insured therisks they face. They only transfer to insurers
large losses that occur infrequently. The ideaof transferring risks to third parties is not yet
culturally implanted for the public sector.
Municipalities tend to buy traditional
coverages (e.g. property, liability) and they do
not invest in policies they will probably needfor the future (e.g. cyber). Moreover, public
servants are mostly working in isolation.
Insurers see this phenomenon as an issue
when they try to interact with municipalities.
These cultural barriers are preventing thedevelopment of further partnership between
both parties. It seems that these challenges
will inevitably change with time. However, inorder to develop further collaboration withinsurers, local authorities should work onthese actual barriers.

5. Fostering further collaboration

5) Improve data collection. Insurers, brokers andcities should emphasise the importance ofimproving data collection, hazard mappingand other tools to manage and quantify
increasing catastrophe risks in underwriting
processes (Lloyd's, 2017). Insurers should
help communities understand, prevent andreduce risk through risk research andanalytics, catastrophe risk models, and loss
prevention (ICLEI, 2017).
6) Share data and analytics. As data becomes
more ubiquitous and cities collect more of it,
cities need to harness the power of this data
to develop the risk retention and risk transfer
strategies that are right for them. When doneright, leveraging data and analytics should
help to identify, assess and quantify threats(insurable or not) and their impact to theshort-term financials as well as the longerterm strategic objectives of cities. By sharing
data and risk insights, cities could take therelationship with insurance markets to a newlevel of transparency that can only bebeneficial for everyone involved. Indeed, as
these insights are vital for cities tounderstand and prevent losses, public
servants could internally lobby on why andhow insurance policies could be beneficial formunicipalities when facing severe andunexpected events. As an example,
collaboration between insurers and cities
have been implemented in Nordics countries.
Access to statistics and information from theinsurance companies has been proved to bea great value for municipalities and their work
on climate damage (Danish Insurance
Association, Finance Norway, Federation of
Finnish Financial Services, Insurance
Sweden, 2013). Indeed, in 2011 during the
Copenhagen cloudburst event, the insurance
industry played a critical role in providing dataon economic losses which informed postdisaster resilience planning (CICERO Climate Finance, 2018). Claims datacontaining city’s performance following acatastrophe could be used to create aregister available to the public. This
information could allow to identify trends
relating to the losses incurred by cities andbe used to inform cities on the insurance
requirements needed. Learning from theexperiences of cities in loss scenarios could
be beneficial for them.

627) Provide extra services with insurance covers.
Other services such as public relations andcrisis management could be included in theinsurance covers. This will add value andallow the insurance industry to differentiate
from other carriers.
8) Interact more with customers and meet theirneeds. It is important for the insurance
industry to engage more with local
authorities, to understand the risks they face
and to invest in research. Insurers should
engage more with clients and understandexactly what they are looking for. Indeed,interacting more with customers will help
insurers to adapt the offers they propose tobetter align with customers’ needs. By
improving and adapting supply to demand,
insurers could extend their collaboration withlocal authorities. Interactions and dialogue
should be developed between insurers andlocal authorities. Regular policy reviews withcarriers on an annual basis could beorganised to understand the coverageafforded. These meetings will allow
municipalities to express their concerns in amore intimate setting and will challenge theconvention that buying insurance ismechanical and does not foster the long-term
relationships municipalities value.
9) Develop long-term relationships.
Governments are employing tendering
processes when working with third parties.
These processes also apply to insurers.
Tender processes are transparent, provide
essential information to potential suppliersand ensure a fair chance for businesses.
However, some interviewees mentioned thatthese processes are sometimes preventing
the development of long-term relationships
as they are frequently renewed. In order tomaintain long term relationships, somemunicipalities are adapting their tendering
processes. Working on these processes
could allow public entities and insurers tosave time and efforts.

5. Fostering further collaboration

10) Implement risk-mitigation measures. Insurers
should work with governments to administer
policies aimed, for example, at improving
construction standards or discouraging
building in inappropriate areas. Better risk
management could lead to lower pricing,
reducing the overall cost to economic growth.
It is in the interest of policyholders andgovernments to implement risk-mitigation
measures, thereby potentially reducing both
the damage from natural catastrophes andthe cost of insurance. One way the insurance
industry incentivises policyholders to
introduce risk-mitigation measures where
local regulation prevails, is through risk-based
premiums for implementing appropriate
mitigating actions. Another method is for
insurers to give policyholders the option toshare a greater proportion of the risk throughoffering policies with higher deductibles. It
reduces the cost of insurance but leaves thepolicyholder exposed to more risk, and assuch they may need to take additional action
to reduce their residual risks (Lloyd's, 2017).
11) Work on cross-sector and industry learning
experience. As the public sector is trying tolearn from the private sector, insurers could
share expertise and communicate better on thelearning experience of other sectors. This willallow the public sector to take learning from one
industry, to adapt and to apply it to another.
This cross-sector learning would be a way forcustomers to understand how other industries
are dealing with the same threats and how they
could learn from their experience. Insurers
could play a key role in sharing expertise andproviding lessons learned. A register ofrecognised issues looking at different levels –industry, clients, country – could be established
to share expertise.

6312) Create and develop umbrella policies. Public
entity packages include a range of products
for different classes of risks targeting the
public sector specific needs. These programs
are designed to suit public entities that want
to transfer a comfortable amount of risks.
Umbrella policies could be developed andproposed to municipalities. This is already thecase in the United States and these programs
could be extended to other geographic areas
such as Europe.

Cities at risk
Building a resilient future for the world’s urban centres

6. Conclusions

A Lloyd’s emerging risk report6. Conclusions

64

6. Conclusions

This report focused on cities as urbanisation is
occurring in every region of the world, making urban
populations larger than ever. Cities are large
networks of people and assets, made up of complex,
interconnected ecosystems. Metropolises are often
illustrating and reflecting global trends. As the worldis evolving, so cities are also facing new andpersistent risks.
The seven city case studies discussed in the report
are at different stages of their development
strategies and have varying risk profiles, illustrating
how cities with a range of trajectories andcharacteristics are facing and adapting to upcoming
threats.
Urbanisation provides opportunities for insurers inpart because of cities’ scale and the demand for
rapid change as they develop. Urban areas are abroad market, they tend to be more affluent and havemore assets, people and liabilities to insure than ruralzones.
As “many cities all over the world are grossly
unprepared for the multidimensional challenges
associated with urbanisation” (UN-Habitat, 2016), thisreport looked at how the insurance industry could bepart of cities risk management plans. From interviews
with stakeholders, it emerged that cities are mostly
self-insured, and insurance is still unknown orculturally not considered in some countries. Insurers
are facing cultural barriers as cities are not aware of
the offers available and the benefits from purchasing
insurance covers. Cities risk managers and insurers
should continue to work together in order to increase
collaboration and understanding.

Next steps for city risk managers
The Lloyd’s market already has a lot of products
meeting the needs of the municipalities community
and it stands ready to respond to policyholders’demands.
−

Lloyd’s market can work with cities on theprocess of understanding their risks andexposures and looking at what kind of risks canbe managed or should be covered. Lloyd’s
market is also developing other tools like crisis
management, scenarios and public relations toprovide extra services to their clients.

−

Lloyd’s market is also working on a long-termbasis. Insurance is there to provide certainty inthe face of disasters and to help customers.
Developing long-term relationships will help cities
working with insurers from the earliest phases of
their projects to understand what the high-risks
items are and to allocate funds appropriately for
their insurance needs.

−

Lloyd’s market provides public entities withumbrella policies in some countries. These
policies are designed to suit public entities thatwant to transfer a comfortable amount of risks.
Public entity packages include a range of
products for different classes of risks.

6. Conclusions

Next steps for insurers
Based on the interviews conducted, urbanisation
provides opportunities for insurers. To takeadvantage they should:-

Work and interact more often with risk
managers at a local level, in order to close theknowledge gap, meet every day
municipalities’ needs and implement riskmitigation measures.

-

Work with insurance clients to help themunderstand how pricing for premiums arecalculated.

-

Communicate and share expertise on thelearning experience of other sectors. Crosssector learning would be a way for customers
to understand how other industries are
dealing with same threats.

65

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Building a resilient future for the world’s urban centresReferences

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