Disaster Risk Grows For World's Megacities

The Age

Saturday February 5, 2005

JOHN SCHAUBLE

AS THE insurance payout from this week's storms and flooding in Victoria is tipped to reach at least $100 million, further evidence suggests that even relatively small disasters in large cities pose enormous human and financial losses.

Even before the Asian tsunami, 2004 was the costliest natural disaster year ever for the global insurance industry, with losses of $US40 billion ($A52 billion) and more than 15,000 deaths. Cyclones in the US, Caribbean and Japan alone generated insured losses exceeding $US35 billion.

Paradoxically, despite the massive loss of life and widespread physical devastation of the recent tsunami, the impact on major economic infrastructure was relatively slight as much of the damage was in non-urban areas.

But the global trend towards "megacities" and vast urban sprawl are a major threat to human safety, according to a report by one of the world's largest reinsurance houses.

Cities are vulnerable to natural disasters, not because they are inherently unsafe, but because of their size and the quantum of potential damage. An earthquake in a city such as Tokyo or Los Angeles would have catastrophic consequences, says the report, Megacities - Megarisks, released by German insurer Munich Re to coincide with the second UN World Disaster Reduction Conference held recently in Kobe, Japan.

The report notes that many megacities - those with populations of 8 million or more - are "virtually predestined to suffer major natural disasters" because of location, size and vulnerability. "Megacities are also particularly exposed to one of the biggest risks of our time - terrorism," it says.

For insurers large cities, and megacities in particular, present a new range of exposures. Life, personal accident, health, property, employment and liability insurances are all affected.

In terms of property insurance, urban growth is matched by a rise in the accumulation of material assets, representing huge potential growth - and risks - for insurers. This is also true of developing countries where a growing middle class is seeking to insure its property, Munich Re says. Globalisation means a disaster in one city has a direct impact on distant economies. "A business interruption in an Asian metropolis can lead to production losses in Australia or Europe," it says. Cities such as Melbourne and Sydney have become important "nodes" as financial centres or as gateway cities to countries or regions.

Munich Re previously calculated a risk index for megacities hit by natural disaster. The score for Tokyo using this model is 710, followed by San Francisco (167) and Los Angeles (100). London is ranked at 30, while Sydney's risk index is 6.

LINKS www.munichre.com

www.ica.com.au

© 2005 The Age

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