Emerging risk research completed by an international insurer reveals a 12% chance of a major solar storm event occurring within the next decade, with the repercussions of an unexpected event likely to be almost boundless.
Lloyd’s has released a detailed report outlining the potential implications of electrical disruptions caused by a large solar storm, which could unleash widespread damage too electrical grids, trigger voltage collapse and cause damage to extra-high voltage transformers.
Lloyd’s General Representative Chris MacKinnon presented on the report at the recent ANZIIF Convention, saying that although the results of the research are hypothetical, the realities of such an event occurring go well beyond the means of the international insurance industry to manage.
“What would this mean for us? With the state of inter-connectedness of modern civilisation, it would be devastating,” he says.
“The projections are that a major event such as that could impact between 20 and 40 million people, with outage duration between 16 days and two years.”
“The total economic loss potential for this scenario is somewhere up around US$2.6 trillion,” he adds.
“Early warning should allows us to put in place preventative measures, but it’s a question of getting communication out to ensure that systems and power grids are shut down in anticipation.”
Mackinnon says that the effects of a major solar storm could affect almost every insurance policy.
“Pretty much every product line you could think of has the potential to be impacted,” he says.
Looking at the likely implications of an event of this scale, the report outlines some of the problems that the insurance industry would be likely to face.
“Large transformer repairs/replacements occur on the timescale of weeks to months, and could result in long-term widespread blackouts,” the report states.
“Business interruption is likely to be only one aspect of potential insurance exposure. A major space weather event could disrupt supply chains and this might trigger contingent business interruption covers.”
“It is also conceivable that major power outages could result in liability claims if, say for example, employees’ safety was compromised or the public were put at risk.”
The report states that solar storms large enough to affect earth’s magnetic field are expected to occur within 150-year cycles. The last geomagnetic effect of this scale, named a Carrington Event, occurred in 1859.