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Geomagnetic storms and extreme solar weather threats should be considered

Aon Benfield is advising organizations and the insurance industry to consider the potential ramifications of a severe space weather event, especially as solar and geomagnetic activity is predicted to peak in the coming 12 months.

The advice comes in a new report ‘Geomagnetic Storms’ which reviews the potential threat and risk management implications of geomagnetic storms and extreme solar weather.

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.

Geomagnetic storms and extreme solar weather are a realistic threat to three critical areas of modern infrastructure:

  • Electrical power distribution: Massive ground currents resulting from geomagnetic storms can flow through electricity distribution networks, resulting in large scale blackouts and permanent damage to transformers.
  • Telecommunications: Enhanced X-ray and extreme ultraviolet solar radiation during a solar flare has implications for radio propagation and telecommunications systems, including blocking of global communications.
  • Global satellite navigation: Solar radiation trapped in belts around Earth interacts with satellites leading to orbit decay, static electrical discharges and disabling of GPS services with particular consequences for aviation in high latitudes.
    Few attempts have been made to estimate the potential costs of space weather events. However, a 2004 report of the US National Academy of Sciences estimated the economic costs of a repeat of the 1921 event for the US alone at USD2 trillion for the first four years but with recovery taking up to ten years.

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. However, these contracts are unlikely to have been drafted for specific extreme solar weather losses. Looking forward, risk managers and insurance brokers can utilise this threat to develop broad-based contingent business interruption and extra expense products that currently require a physical damage trigger.

This report forms part of a new series for 2013 from Aon Benfield that explores ‘pear-shaped phenomena’. These are relatively low probability, high consequence events that pose substantial risks to industry and the economy.

Read Geomagnetic Storms here.

•Date: 15th Jan 2013 • World •Type: Article • Topic: Enterprise risk management

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