A new systemic risk scenario that models the global economic impact of extreme weather events leading to food and water shocks was launched by Lloyd’s. The new scenario model estimates the loss to be $5tn over a five-year period.
A media release by Lloyd’s said, “The scenario explores how a hypothetical but plausible increase in extreme weather events, linked to climate change, could lead to breadbasket crop failures and significant global food and water shortages.
Lloyd’s said, “As the event plays out, societies around the world could see widespread disruption, damage and economic loss, promoting major shifts in geopolitical alignments and consumer behaviours.”
The first in a series of nine systemic risk scenarios, this research has been produced by Lloyd’s Futureset and in partnership with the Cambridge Centre for Risk Studies to help risk owners better understand their exposure to critical threats such as extreme weather and role of risk mitigation and insurance protection to build their resilience.
It is supported by a data tool that provides businesses, governments and insurers with a data-driven, financial impact assessment of the most significant global threats facing society today consider the GDP impact of extreme events across 107 countries and at three levels of severity (major, severe and extreme).
The research highlights that there is a significant climate risk protection gap, with estimates suggesting that only a third of the global economic losses caused by extreme weather and climate-related risks are currently insured.
Lloyd’s CEO John Neal said, “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. We will continue to use our convening power to support global risk resilience, providing risk transfer solutions to support companies and countries in their transition goals.”
Cambridge Centre for Risk Studies executive director of systemic risks Trevor Maynard said, “The global economy is becoming more complex and increasingly subject to systemic threats. We are delighted … to help businesses and policymakers explore the potential impacts of these scenarios.” M