CHICAGO, 14 January 2013 – Aon Benfield, the global reinsurance intermediary and capital advisor of Aon plc (NYSE:AON), is advising 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. In response, Aon Benfield Analytics has launched a new report entitled ‘Geomagnetic Storms’* to review the potential threat and risk management implications.
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.
Stephen Mildenhall, CEO of Aon Benfield Analytics, 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 last 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.”
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. With careful research and communication, the insurance industry can be at the forefront of risk mitigation for pear-shaped phenomena.
*Access the report here: http://thoughtleadership.aonbenfield.com/Documents/201301_geomagnetic_storms.pdf
About Aon Benfield
Aon Benfield, a division of Aon plc, is the world’s leading reinsurance intermediary and full-service capital advisor. We empower our clients to better understand, manage and transfer risk through innovative solutions and personalized access to all forms of global reinsurance capital across treaty, facultative and capital markets. As a trusted advocate, we deliver local reach to the world’s markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial and rating agency advisory. Through our professionals’ expertise and experience, we advise clients in making optimal capital choices that will empower results and improve operational effectiveness for their business. With more than 80 offices in 50 countries, our worldwide client base has access to the broadest portfolio of integrated capital solutions and services. To learn how Aon Benfield helps empower results, please visit aonbenfield.com.
Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 62,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon’s global partnership and shirt sponsorship with Manchester United.
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