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Solar Storms — A Real Risk for Insurers

A recent report from Lloyd’s of London broker Aon Benfield says that we are in for some extreme solar weather for the remainder of 2013, which could lead to business interruptions and large insurance claims. This peak in activity comes in accordance with the sun’s 11-year cycle.

The report states:

Massive ground currents resulting from geomagnetic storms can flow through electricity distribution networks, resulting in large scale blackouts and permanent damage to transformers. Enhanced X-ray and powerful ultraviolet solar radiation during a solar flare can impact on radio propagation and telecommunications systems, blocking global communications. Solar radiation can even cause a satellite’s orbit to decay, while static electrical discharges interfere with GPS services creating problems for aircraft at high latitudes.

Researchers state that if a solar storm similar to that which occurred in 1921 happened today, it would cost upwards of $2 trillion, with recovery taking up to 10 years for the U.S. alone. The infamous solar storm of 1921 caused “the entire signal and switching system of the New York Central Railroad below 125th Street to be put out of operation, followed by a fire in the control tower at 57th Street and Park Avenue.” Interference was also reported throughout most of Europe.

Though it’s impossible for scientists to predict exactly when or where the next solar storm happen, what they do know is that with more sunspots come more stoms. And the fall of 2013 is when the Sun is set to reach the crest of its 11-year sunspot cycle.

“Well-rehearsed contingency planning for a wide range of potential natural and man-made disasters is always going to be worthwhile for any business,” says Aon Benfield analyst Ryan Springall within the report. “The crucial issue for many businesses and households in the case of geomagnetic storms is likely to be loss of electrical power, possibly for an extended period.”

The study also points out that insurers could be liable for unforeseen losses as a result of a solar windstorm — anything from machinery breakdown to D&O. If scientists are right, this coming fall will be a hotbed of solar activity. It would be prudent to develop a broad-based business interruption plan and alter your insurance to cover such a rare event.

Risk Management Magazine and Risk Management Monitor. Copyright 2022 Risk and Insurance Management Society, Inc. All rights reserved.National Law Review, Volume III, Number 84
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About this Author

Editor

Emily Holbrook is the editor of Risk Management magazine and the Risk Management Monitor blog.

212-655-5915
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