As if earthly natural catastrophes were not enough, risk managers will have to keep an eye on solar flares as the 11-year solar storm cycle peaks during 2012-13. Solar storms cause a violent and massive transfer of energy and matter from the sun to the earth that results in a geomagnetic storm (disturbance) in the earth’s magnetic field. The resulting geomagnetically induced currents could damage and disable electrical utilities, satellite communication systems and other systems.
Over the years there have been many solar storms, and in previous solar cycles we have dodged the bullet. One of the most severe solar storms, the 1859 “Carrington Event,” disabled telegraph systems, the benchmark communication technology of the time. Today we are much more dependent on the continuing operation of modern power grids and telecommunication. According to a report published by the National Academy of Sciences, a storm the size of the Carrington Event could cause as much as USD 2 trillion in damage to critical infrastructure, and recovery could take four to 10 years. A powerful solar flare in March 2012 did not cause the major disruptions that some feared, but it did reignite the debate on how to manage this unrecognized mega-risk.
Electricity and telecommunication are the life-blood of our interconnected global society. Vulnerability of communication satellites and the electrical grid is real. Major solar storm eruptions are considered a low-frequency, high-impact event, but ignoring them is not an acceptable option for our interconnected technology-dependent society. All stakeholders – risk managers in vulnerable industry segments, insurers, brokers and governments – have to work together to help mitigate the potential social and economic consequences of a solar storm.