The model estimates a staggering US$5 trillion loss over a five-year period.
This scenario explores a hypothetical yet plausible surge in extreme weather events, intricately linked to the narrative of climate change. The events could trigger crop failures in crucial agricultural regions, causing severe global shortages of food and water. The unfolding scenario paints a grim picture of widespread disruption, damage, and substantial economic losses, potentially prompting significant shifts in geopolitical alignments and consumer behaviors.
Developed by Lloyd’s Futureset in collaboration with the Cambridge Centre for Risk Studies, this research is the inaugural installment in a series of nine systemic risk scenarios. Its goal is to provide risk owners with a profound understanding of their exposure to critical threats like extreme weather, emphasizing the pivotal role of risk mitigation and insurance protection in enhancing resilience.
The initiative is supported by an innovative data tool offering businesses, governments, and insurers a data-driven financial impact assessment of the most critical global threats facing society today. It evaluates the GDP impact of extreme events across 107 countries, categorized by severity levels: major, severe, and extreme.
In addition to the global outlook, the tool includes regional analyses, shedding light on potential economic losses in case events are regionally concentrated. The recovery period for individual countries or regions depends on their economic structure, exposure levels, and overall resilience.
For instance, if an extreme event were to focus on Greater China, the region would experience the most significant financial impact, resulting in economic losses of $4.6 trillion over five years. Asia Pacific would closely follow, facing losses of $4.5 trillion. The research highlights a substantial climate risk protection gap, suggesting that only a third of the global economic losses caused by extreme weather and climate-related risks are presently insured.
Lloyd’s CEO John Neal said that the market will continue to use its convening power to support global risk resilience for both companies and countries.
“Lloyd’s is committed to building society’s understanding and resilience around systemic risk and protecting our customers against increasing climate threats. It is critical that our market continues to collaborate with the public and private sectors to address this challenge at scale and ensure a sustainable future for all,” Neal said.
Author: Joanna England
