Cities must overhaul their approach to risk management in order to make their infrastructure more resilient to catastrophic events, according to a report by Lloyds.
Future Cities: Building Infrastructure Resilience reveals that officials, investors and insurers will increasingly need to strengthen city frameworks to improve their ability to cope with, and recover from disasters.
This can be achieved by ensuring the overall system still works if part of its infrastructure fails, examining ways to respond quickly post-disaster, and by replacing damaged parts with a more resilient version when rebuilding.
Lloyd's CFO, John Parry, said: "Most global population increases are expected to take place in cities that are more at risk from natural hazards, and cities in general are exposed to a greater diversity of risks than ever before.
"It is absolutely critical, therefore, that city officials, working with insurers and other stakeholders, act to improve city resilience.
As well as being exposed to the risk of natural disasters, cities are also increasingly vulnerable to emerging threats such as cyber attacks and terrorism, according to the report.
Lloyd's City Risk Index found that $4.6trn (£3.66trn) of the projected GDP of 301 cities worldwide is at risk from 18 threats over the next decade.
The report suggests nine areas that the insurance sector and other stakeholders should address to minimise these risks, which are:
Improving data collection
Using the new data to quantify risk and inform decision-making
Establishing metrics to enable the development of indices and models to assess resilience
Finding ways to incentivise investment by making resilience assessments available
Incentivising policyholders to take risk mitigation measures through risk-based pricing
Developing collaborative models and tools that provide a transparent, comprehensive and accessible approach to analysing and pricing risk
Creating indices that can be used by insurers to incorporate levels of resilience into the underwriting process
Creating shared understanding of how components and stakeholders of cities interact
Considering resilience services which draw on facilities management, disaster recovery, build and operate contracts, and insurance.
"Multiple factors build resilience and these should be measured and summarised by creating indices," Lloyd's head of innovation, Trevor Maynard, said.
"This is essential to enable insurers to better incorporate levels of resilience into the underwriting process, which would then be expected to recognise and reward the action taken by city officials where risk-based pricing is permitted."