The Earth is spectacular at reflecting solar rays. Electrons from the sun hit the upper reaches of our atmosphere and are regularly diffused, causing the incredible green streaks we call Aurora Borealis.
People travel thousands of kilometres to see the results, though every so often, a solar storm hits the planet so hard that it has the potential to cause widespread damage. The last was in 1859, when the Carrington Event – a perfect storm of solar wind and geomagnetic activity – struck Earth. The aurora was so strong that it could be seen in some northern parts of Queensland!
Global insurer Lloyd's believe there is a 12% chance of a solar storm hitting the planet in the next nine to 10 years.
Businesses in the mid-19th century were fairly unaffected, however. It would be 20 years later when Thomas Edison created the light bulb, and electricity simply wasn't something that could make or break operations.
If such an event was to happen today, it would cause chaos, destruction and leave millions of SMEs claiming heavily on their business insurance policies. If companies are underinsured (or not insured at all), it's likely that we'd see near-countless numbers of businesses disappear from our landscape.
It's a probable scenario should such a global event happen. As many as 80% of SMEs are underinsured, with clients struggling to afford cover – something insurance finance is desperately trying to help lower.
But what are the chances that such a space storm will happen again? Unfortunately it's almost certain. The golden question is when it will occur, and global insurer Lloyd's believe there is a 12% chance of a solar storm hitting the planet in the next nine to 10 years.
The trillion-dollar impact
"What would this mean for us?" Lloyd's General Representative Chris MacKinnon posed at the ANZIIF Convention late last year. "With the state of inter-connectedness of modern civilisation, it would be devastating."
Reported by Insurance and Risk Professional, Mr MacKinnon continued to say the outage caused by such an interstellar event would cause around AU$3.6 trillion in damages to the electricity grid and its equipment, as well as electrically powered assets owned by businesses. Even while people try to repair the damage, some places could be left without electricity for up to two years.
"Business interruption is likely to be only one aspect of potential insurance exposure."
The claims bill would be substantial. We only have to look at some of the most expensive natural disasters in Australian history to get a perspective on the clean-up bill from wild weather events; should a solar storm strike, it would be much, much higher.
Battening down the hatches
It's not time to build a fallout shelter just yet – or anything else so drastic. Insurance brokers can instead focus on making sure their clients have the right level of coverage.
"Business interruption is likely to be only one aspect of potential insurance exposure. A major space weather event could disrupt supply chains and this might trigger contingent business interruption covers," Mr MacKinnon continued.
"It is also conceivable that major power outages could result in liability claims if, say for example, employees' safety was compromised or the public were put at risk."
Are your clients ready? While it's hard to plan for future events that may or may not happen soon, insurance becomes even more precious. If cash flow is a problem for your clients, premium funding can help them afford cover against some of their most pressing risks.
Give Attvest a call to see how insurance finance can give brokers and their clients a significant lifeline.
