Thursday, February 27, 2014

"Catastrophic Solar Storm Inevitable, Insurers Warn"

There was a method to the madness when we posted "Space Weather Forecast" on Sunday.
From the Wall street Journal's Risk and Compliance Journal, Feb. 26:
The sun erupted on Monday, releasing a powerful flare that happened to point away from earth, a lucky break for earthlings. In 1859, a similar solar eruption knocked out telegraph systems across Europe and North America, and had Rocky Mountain gold miners up for breakfast at 1 a.m. because they thought it was daytime. Analysts say that another solar storm as severe as that 1859 event is inevitable, will be much more costly–and they note ominously that the sun is now near the peak of its activity cycle.
NASA
A strong solar flare on the surface of the sun is seen in this image from NASA’s Interface Region Imaging Spectrograph taken Jan. 28.
”The risk is real, and it will happen one day–we know that,” Romain Launay, advisor to the chairman and chief executive officer of the Paris-based reinsurer, SCOR SE, told Risk & Compliance Journal in an interview, “The uncertainty lies in the exact consequences.”

The consequences are likely to be more severe than in the horse-and-buggy 19th century. According to a new report from SCOR they could include long power blackouts affecting millions of people, and causing trillions of dollars in damage. “The more we rely on the Internet, the availability of all sorts of communication channels, GPS, etc., the more we are dependent on power. That’s the major exposure driver,” said Reto Schneider, head of emerging risk management at Swiss Re, which has also raised concerns about the risk.  Lloyd’s last year reported that a major solar storm is “almost inevitable”, estimating the frequency at one every 150 years, and said that 20 million-40 million people in the U.S. are at risk of power outages lasting from two weeks to two years.  Of course, it has been 155 years since that last really big one in 1859.
The threat of solar storm is serious enough that in January, the Federal Energy Regulatory Commission proposed adoption of new standards to address “potentially severe, widespread effects on reliable operation of the nation’s bulk-power system,” according to a statement. Last year, Commissioner Cheryl A. LaFleur said in a statement, “While there is debate over whether a severe GMD [geomagnetic disturbance] event is more likely to cause the system to break apart due to excessive reactive power consumption or to collapse because of damage to high-voltage transformers and other vital equipment, there is no debate that the widespread blackouts that could result under either scenario are unacceptable.”

Despite the severity of the threat seen by regulators and insurers, businesspeople ranked solar weather near the bottom of their 50 priority risk concerns in last year’s Lloyd’s Risk Index . Because so-called Carrington events (named for British astronomer Richard C. Carrington, who observed the 1859 solar activity) are infrequent, it may be too easy to ignore the potentially catastrophic results. “For various people it’s an unthinkable scenario. What if the Internet is not available?” said Mr. Schneider.

Insurance may not be much help, while paradoxically the insurance industry could be hurt. Few insurance policies even mention solar risk. Actual physical damage is often required to activate business interruption policies, and a company may be without power yet without physical damage in a solar storm that knocks out the electricity grid. Sublimits on other insurance policies could limit what a company might expect to recover after a shutdown....MORE