The insurance and reinsurance industries should begin to consider the potential consequences of a severe space weather event, says global reinsurance company Aon Benfield.
Solar and geomagnetic activity in particular will peak in the next year, the company says as part of its release of a new report from this month, called Geomagnetic Storms.
“Although the probability of an event occurring is low, solar activity roughly follows an 11-year cycle with the peak in solar activity expected to occur in early 2013,” the company notes.
Aon calls geomagnetic storms and extreme solar weather a “realistic threat” that can have severe consequences on electrical power distribution (leading to widespread blackouts), telecommunications (including blocking of global communications) and global satellite navigation (which could have consequences for GPS systems, particularly in aviation).
“Insurance and reinsurance industry awareness of geomagnetic storms has grown in recent times, but accurate assessment of risk still remains in its infancy for all but a few niche sectors,” Stephen Mildenhall, CEO of Aon Benfield Analytics says.
The report looks at five major geomagnetic events that have occurred over the last 150 years, and some of the critical insurance issues involved in responding to the risk.
“Insurance policies and reinsurance treaties are likely to contain the legal triggers for liability in the event of the catastrophic failure of electricity distribution, telecommunications or satellite navigation networks,” the report states.
“However, these contracts are unlikely to have been drafted with any degree of consideration for a loss occurrence of the type initiated by extreme solar weather.”
Estimates on the costs of such events are rare, but Aon does point to a 2004 report from the U.S. National Academy of Sciences that estimated the economic costs of a repeat of a May 1921 event that involved magnetic field changes at $2 trillion in the U.S. for the first four years, but with recovery taking up to 10 years.
The report is part of a series that Aon will continue throughout 2013 on “pear-shaped phenomena,” or “relatively low probability, high consequence events that pose substantial risks to industry and the economy.”