Report will review the threat of future weather events and potential risk management implications
Aon Benfield has warned insurers that they must begin to consider the potential ramifications of a severe space weather event, particularly since solar and geomagnetic activity is predicted to peak sometime in the next 12 months as the sun reaches the height of its 11-year cycle.
The reinsurance intermediary believes the issue to be so serious that it has launched a new report, Geomagnetic Storms, which will seek to review the threat of any future weather event and potential risk management implications.
Geomagnetic storms and extreme solar weather pose a business continuity threat as they can potentially disable power and telecommunication lines as well as satellites.
A 2004 report commissioned by the US National Academy of Sciences estimated economic costs of a repeat of the infamous 1921 event for the US alone could run up to $2trillion for the first four years, with full recovery taking up to 10 years.
While insurance policies and reinsurance treaties are likely to contain the legal triggers for liability in the event of the catastrophic failure of electricity, telecommunications or satellite navigation networks, 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.
Aon Benfield Analytics chief executive Stephen Mildenhall said: “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.
“The report details five major geomagnetic events that have occurred over the past 150 years, highlighting the need for a better understanding the risk management, pricing and coverage implications of this very credible type of event. We also outline some of the critical insurance issues involved in responding to the risk of geomagnetic storms.”
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