Impact of Catastrophes on Global GDP Set to Rise in 2020

A leading academic has warned the global re/insurance industry has to brace itself for a series of catastrophic threats in the year ahead.

Andrew Coburn, Chief Scientist for the Centre for Risk Studies at the University of Cambridge Judge Business School warned risks are rising and the industry has to be prepared.

The centre has released its annual Global Risk Index, which suggests around $584 billion (1.55% of 2020 GDP) could be wiped off the global economy by catastrophic events in 2020. The figure represents a three percent increase over the past year.

The index measures the potential impact on 279 major cities across the globe, accounting for 41 percent of global GDP. The top ten cities by risk exposure are spread right across the global. Top of the list is Tokyo, followed by Istanbul, New York, Manilla, Taipei, Osaka, Los Angeles, Shanghai, Seoul and Mexico City.

The value of GDP at risk from commodity price shocks, extreme weather, power outages and pandemics has risen. The top three classes of threats in terms of GDP at risk are natural catastrophes $179 billion; financial, economic and trade risk sitting at $149 billion; and geopolitical and security risks in third place at $141 billion.

Mr Coburn said: “Corporate risk is escalating along with the cadence and ferocity of climate-related catastrophes. While reinsurers saw a year of below-average insurance losses in 2019, they remain wary of events that could generate record losses like the 2017 hurricanes and an increasing number of wildfires. As such, ratings agencies predict premiums could rise as much as 5% from January. Power outages, like those forced by the Californian wildfires, have also highlighted the ripple effects impacting societies and their ability to manage throughout, and recover from, catastrophic events.”

“Rate of recovery is critical to reducing relative risk exposure. Insurance pay outs are funding the recovery process of cities,” he added. “The time a city takes to recover also depends on access to funding, including both insurance and aid. Better access enables faster recovery and therefore higher resilience to shocks to the global economy. The insurance world is central to global recovery.”

Source: Cambridge Global Risk Outlook 2020