Lloyd’s has today unveiled a systemic risk scenario tool that models the global economic impact of extreme weather events.

The scenario explores how a hypothetical but plausible increase in extreme weather events could lead to crop failures and, subsequently, significant global food and water shortages.

Under the scenario, societies around the world would see widespread disruption, damage and economic loss, promoting major shifts in geopolitical alignments and consumer behaviours.

In addition to the global scenario, the data tool includes regional analysis, illustrating the potential economic losses should events be focused on a particular region.

Produced by Lloyd’s Futureset in partnership with the Cambridge Centre for Risk Studies, the scenario is the first in a series of nine designed to help risk owners better understand their exposure to critical threats. Amongst the other scenarios modelled in the suite are geopolitical conflict, human pandemic and economic stagnation.

Commenting on the launch of the suite of tools, John Neal, CEO of Lloyd’s, said: “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.

“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.”

Dr Trevor Maynard, executive director of systemic risks at the Cambridge Centre for Risk Studies added: “The global economy is becoming more complex and increasingly subject to systemic threats. We are delighted to work with Lloyd's, and others, to help businesses and policymakers explore the potential impacts of these scenarios.”


Scenario example: (Source: Lloyd’s Futureset)

If an extreme event such as the one outlined above was centred on Greater China, the area that would feel the largest financial impact, it could lead to economic losses of US$4.6trn over five years. This is followed closely by Asia-Pacific at US$4.5trn. As a percentage share of GDP, the Caribbean would be impacted the most by an event focused on its shores, losing 19% of GDP across the five-year period.

The research draws attention to a 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.

Scenario severities have been given a probability of occurring in the next five years, based on several risk factors. In the above scenario, the probabilities for each severity are: Major 2.29% (1 in 50-year), Severe 1.10% (1 in 100-year), and Extreme 0.30% (1 in 300-year).

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