LL: Financing Tomorrow’s Cities
Financing Tomorrow’s Cities
Population growth, urbanisation and climate change are presenting significant challenges for cities now and into the future.
Lloyd’s head of exposure management and reinsurance Trevor Maynard spoke at the recent launch event for a new initiative “Financing Tomorrow’s Cities”, which aims to bring together multiple stakeholders to devise workable solutions for these challenges.
The collaborative project was introduced by London’s new Lord Mayor Fiona Woolf and jointly launched by the City of London Corporation and Z/Yen Group. The aim is to come up with innovative financing mechanisms, engineering solutions and risk management products for urban areas in the future.
“Financing Tomorrow’s Cities is all about the scale of challenge awaiting city decision-makers around the world, in developing relevant infrastructure and services to meet the challenge of a rising urban population,” explains Chiara von Gunten, Long Finance project manager. “At the moment we have more than half of global population living in cities and by 2050 that is forecast to rise to 70% to 80%.
“So there’s a scale of challenges but also opportunities around infrastructure, sustainable buildings, energy provision, access to water, sanitation, managing natural resources, waste management, cities’ resilience and urban quality of life issues that need to be tackled,” she continues.
“To fund that kind of development private sector investment is needed. At the same time we also need innovative technological solutions in terms of engineering and infrastructure. With global risk – especially climate change – risk management products also need to be developed to increase and safeguard cities’ resilience. Cross-sectoral dialogue is needed in order to identify and develop appropriate solutions.”
In his presentation at the launch event Maynard highlighted how cities might better withstand disasters brought on by climate change, space weather, pandemics or other natural hazards. He drew attention to a new ClimateWise report Building Climate Resilience in Cities.
“The key concept of ‘resilience’ underpins everything,” he said. “Resilient cities can pick themselves up after a disaster and rebuild sustainably where necessary. Resilient cities will have well-protected infrastructure including transport, utilities and buildings, to avoid damage in the first place. Resilient cities will be safer to live in and a better place for businesses to operate with fewer interruptions.”
Resilience to climate change will become even more important in the future given sea level rise, more severe extreme weather events (according to predictions from the Intergovernmental Panel on Climate Change) and the fact many of the world’s biggest cities are coastal.
Compounding the natural hazard risk is the fact that cities are getting bigger, with denser populations and more assets at risk. At present, 75% of the world’s urban population are in emerging markets. By 2025 14 more megacities with over ten million inhabitants will have been formed, up from 23 today.
Last year’s Superstorm Sandy showed the susceptibility of metropolitan areas to the impact of catastrophes. Sandy had a massive storm surge which inundated large parts of New York’s Manhattan Island, flooding subways and tunnels. The hurricane killed over 72 people in eight States and caused $68bn in damage, according to Swiss Re.
More recently, Typhoon Haiyan demonstrated how destructive storms can be when they hit regions that lack strong infrastructure and buildings codes. Haiyan was one of the most powerful tropical cyclones in modern record-keeping when it hit the Philippines on 8 November.
Despite widespread devastation caused by the tragic storm, which killed thousands and displaced more than 650,000 people in the Philippines, much of the damage is uninsured or underinsured. Insured losses from Haiyan are estimated at between $300m and $700m, according to cat modelling agency AIR Worldwide, however economic losses are expected to reach $6.5bn to $14.5bn.
In September 2013 Swiss Re published a risk analysis of 616 metropolitan areas (home to around 1.7 billion people) around the globe to assess which cities are the most exposed to earthquake, storm, storm surge, tsunami and river flood. In terms of the population potentially affected by these perils, Tokyo-Yokohama was ranked first, followed by Manila, the Philippines’ capital city.
Typhoon Haiyan spared Manila, with its population of 20.9 million, but made landfall in the city of Guiuan (population 47,000) before tracking through Tacloban City the capital and biggest city (population 220,000) of Leyte province.
The economic burden caused by underinsurance was highlighted in a recent Lloyd’s report Global Underinsurance, which revealed insurance penetration in the Philippines to be just 0.4% as a percentage of GDP, compared to the Netherlands, which has a penetration of 9.5%. The Philippines is one of 17 countries identified as being underinsured, with a shortfall of around $2.9bn.