Insurers unprepared for geomagnetic storms

With a peak in solar and geomagnetic activity expected in 2013-2014, insurers need to work towards a better understanding of the consequences of a space weather event, according to a new report by Aon Benfield.

The report highlights the degree of uncertainty currently surrounding the insurance implications of a major space weather event.

“Geomagnetic storms and extreme solar weather are a realistic threat to the world’s electrical power grids, telecommunication systems and global satellite navigation networks,” the report states. Previous events have caused power blackouts, fires, problems with pipeline protection systems and fibre optic cables, damage to transformers, and exposure of air passengers to excessive radiation.

“Re/insurance 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,” states the report. “The rapid emergence of technology and business dependencies means that mainstream re/insurance professionals are unlikely to be able to accurately price this risk, offer coverage or issue exclusions.”

The report adds that supply chain disruption mitigation measures, contingent business interruption policies and enterprise risk management strategies rarely cater adequately for the scenarios that can arise out of severe space weather.

“Future losses will depend on severity of the event/s, interactions with the earth’s magnetosphere, the territories most affected, the lines of business covered, the precise wordings of policies and their interpretation, and the duration and extent of electricity outrages,” concludes the report. “Each insurer needs to work carefully through the potential ramifications of a severe space weather event.”