16 April 2013 Insurance

A cosmic tsunami

Space weather can be described as the effects of changes in the ambient plasma, magnetic fields, radiation, and associated matters in a given region of space. It is driven primarily by solar activity, ie, events occurring on the surface of the sun such as coronal mass ejections and solar flares, and such solar phenomena track the cyclical nature of sunspot activity.

These events release disturbances in the form of solar wind, clouds of highly-charged particles emanating from the upper solar atmosphere, which can reach the earth in a matter of hours or days and affect the space weather in the proximity of the earth.

The earth is usually well protected from the effects of space weather due to the shielding effects of the atmosphere, but throughout recorded human history, and no doubt earlier, there is evidence that space weather has had profound effects all the way down to the surface of the earth.

When the magnetic field surrounding the earth is distorted by solar wind, the result is an electric field at the surface of the earth which varies with the disturbance to the earth’s magnetic field. This surface electric field produces electrical currents, known as geomagnetically-induced currents (GICs), which flow in any conducting structure that is grounded to the surface of the earth. GICs have the potential to cause far-reaching damage to physical property and to disrupt the normal operation of a wide variety of services and industries worldwide.

Impact on the ground

Modern electric power networks use generating plants which are interconnected by an electrical grid and maintain the desired high voltage over long distances through distributed substations. The GICs behave like a rogue DC current superimposed over the normal alternating currents being carried by the grid.

The GICs shift the operating point of the transformers in the network such that their proper function is hindered. Minor shifts would simply reduce system efficiency, but large shifts could actually damage the high voltage transformers. A small storm would result in no significant effects to the grid, a more powerful storm could trip relays and cause blackouts for a period of hours, while a large storm could permanently damage transformers and result in blackouts of several weeks.

Many systems rely heavily on the international transportation, communication and energy grids to function normally. The interdependency of these three systems is intricate and critical, so even if the communication grid alone experiences a crisis it is likely that the other two will suffer greatly as well. As an example, the effects of magnetic storms can disable communications satellites or even knock them out of orbit completely.

The storm can be quantified by measuring the change in the earth’s magnetic field using a disturbance storm time (DST) index with units of nanoteslas (nT). A moderate storm would measure between -50 and -100nT, an intense storm between -100 and -250nT, and a superstorm more than -250nT. The intensity of the storm will determine the character of the damage and hence the size of the loss.

In 1989, a large geomagnetic storm (DST = -589nT) caused the collapse of an electric power grid in Quebec, Canada, leaving nine million people without power for nine hours. The incident did not cause any permanent damage to the transformers in the network, but several relays were tripped which triggered the blackout. The largest recorded magnetic storm occurred in 1859, and is estimated that the DST reached ≈-1750nT

Since the 1989 Quebec event, there has been much discussion about measures to prepare for the next significant magnetic storm, and about ways to minimise or prevent damage to high voltage transformers. It is likely that through diligent monitoring of the sun, it would be possible to give a warning in adequate time to take basic preventive measures which would limit damage to major infrastructure. It is unclear how far these preparedness measures have been developed in recent years.

The surface area of the earth affected by a magnetic superstorm would be enormous, impacting on numerous installations simultaneously. Even if the losses to each insured were relatively small, the cumulative costs could be devastating to the insurance industry as a whole. Insurers could expect to pay property damage losses in the event of a medium-sized storm, and business interruption/contingent business interruption (BI/CBI) losses as well if the storm were of a greater magnitude.

The insurance industry in general is not pricing in the costs of GIC losses as a bona fide NatCat peril because they happen rarely and specific exclusions or sublimits for losses resulting from GIC events do not exist in current policies. Property damage to critical infrastructure items such as high-voltage transformers at substations would normally be covered under existing policies up to the limits defined for individual events. Regarding BI, those covers would most likely be limited only by sublimits/deductibles already defined for loss of services and BI/CBI.

“Property damage to critical infrastructure items such as high-voltage transformers at substations would normally be covered under existing policies up to the limits defined for individual events.”

Because the markets are just beginning to take notice of this potential peril, they should be prepared to face an uphill battle when pursuing wording changes that would limit the broad scope of the current covers.

Systems potentially affected by space weather/GIC which could have a significant financial impact on the insurance industry include:

  • Electric power grids;
  • Communications networks;
  • Navigation systems;
  • Transportation (aircraft/pipelines/mass transit/rail); and 
  • Satellite (orbital trajectory/hardware).  

For a more comprehensive article covering magnetic storms, please visit our website:

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