Thursday, November 12, 2015

Revealed: The biggest risk is not volcanoes or earthquakes but property

A volcanic eruption, as depicted is this artist's impression, would potentially be the fourth costliest risk to the Auckland economy.

by Tamsyn Parker:

The biggest risk to Auckland's economy is likely to come from a man-made market crash rather than any natural events like volcanoes or earthquakes, new global research suggests.

KPMG New Zealand's general insurance update has revealed findings from the Lloyds City Risk Index which ranks the economic costs associated with 18 major risks for 301 cities over the next 10 years.

Both Auckland and Wellington were included in the research with a market crash topping the list of what could have the biggest GDP impact on those cities.

Another global crash like the 2008 global financial crisis could potentially wipe US$3,560 million from the Auckland economy while Wellington would be affected to a lesser extent with an estimated US$600 million hit.

A major flood was the second largest economic risk to Auckland followed by an oil shock and then a volcanic disaster.

For Wellington a major earthquake and flood were the next costliest.

Terrorism and the potential for a sovereign default where the government can't pay it debts made the list of economic risks in Auckland but not Wellington.

The total economic risk was valued at US$6.3 billion for Auckland and $US1.2 billion for Wellington.

Kay Baldock, head of insurance at KPMG, said it decided to include the Lloyds research in its latest update because it pointed out risks which may not be top of mind in New Zealand.

"If you are in New Zealand the top risk that comes to mind is a natural disaster."

KPMG audit partner Jamie Munro said a market crash would typically refer to a global financial melt-down rippling into New Zealand rather than being caused by a local event.

Baldock said the risks of those events happening were low.

"The probability of any city being affect over the next 10 years is low."

But Munro said it was important that local insurers understood the potential risks in order to provide adequate levels of protection.

Globally the costliest risks were seen as a market crash followed by human pandemic and windstorm.

The total global GDP risk cost was estimated at US$4.6 trillion over the next 10 years.

The top five risks to Auckland's GDP

• market crash US$3560 million

• flood US$590 million

• oil price shock US$580 million

• volcano US$540 million

• human pandemic US$370 million

source: KPMG New Zealand General Insurance Update
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