From the December 2011 issue of Claims Magazine •Subscribe!

The Near and the Far-Fetched Disasters

Scientists Look to the Skies

"'The sky is falling,'" shouted Chicken Little, and they all ran for cover.” Today it seems as if we are all running for cover from something: floods, wildfires, tornadoes, inflation, deflation in housing values, global warming, ice storms, hailstorms, bankruptcies or foreclosures, obesity, contaminated food supply, or some other newsworthy event. Perhaps we can blame it all on the media. If they didn’t report all that bad stuff, then we would not know about it and worry. The reality, however, is that we do have media, and the media can sometimes scare the hell out of us.

I have been a part of that media since first joining the news department of the Wall Street Journal back in 1961. In reviewing the multitude of publications I receive to aid in preparing for the semiannual updates to my four textbooks published by Thomson Reuters West—ranging from the American Bar Association’s The Brief and the Defense Research Institute’s For the Defense to Best’s Review and National Underwriter—I often come across articles, statistics, or court cases that are surprising. Several I have shared in these columns over the years, and others have made only the one-shot introductions to the supplemental updates, citing what may be a current event, but not something of long-lasting interest to that textbook’s reader.

One item from a recent issue of National Underwriter did warrant long-term preservation, which it will receive in the next supplement to Chapter 12 of CAT Claims – Insurance Coverage for Natural and Man-made Disasters, on which I am only a co-author and of which Chapter 12 covers man-made or combination human and natural disasters. One such example is solar storms. Good heavens! Don’t we have enough trouble with earthly storms? Now we have to worry about storms on the sun? Is the sky falling? Scientists at the Atmospheric & Environmental Research agency who wrote the National Underwriter article, published Sept. 5, 2011, Nicole Homeier, Kyle Beatty and James Martin Griffin, think that there is sufficient risk for which we must prepare. Why? How, and what exactly is a “solar storm”? If the last major one occurred in 1859, then what seems to be the big deal?

Toasted Transformers
A solar storm is a plasma flare from the sun that causes a magnetic outburst. It has a horrendous affect on electrical systems, wires, transformers, and grids. The 1859 storm caused electrical shocks to telegraph operators and melted telegraph wires. There were no telephones or electric grids back then. On March 13, 1989, however, just a little more than 22 years ago, a solar flare knocked out the Hydro-Quebec power grid at 2:44 a.m., collapsing the entire power system for that province and causing damage to its equipment. On the same day electrical disturbances and flares attacked power grids around the globe. In New Jersey, a $12 million transformer at the Salem nuclear plant sustained permanent insulation damage from the magnetize plasma from the sun, taking six months to replace.

Solar storms may have done little damage in a non-technological pre-21st century world, but such a storm today, warns the AER writers, “can disrupt radio communication, aviation communication and navigation, and can interfere with the GPS signals used in our positioning and timing technologies.”

“One perhaps under-addressed risk,” they add, “is a cascading interruption in energy supply. Even a short-term electrical power outage can create a shortage in oil supply because all refineries depend on electrical power from the grid.” A geomagnetic storm, they say, will “not only cripple the electrical grid but also corrode oil and gas pipelines.” In post-tsunami disaster zones, gasoline is now pumped into autos by the station owner pedaling an exercise bike that is hooked to a generator, producing enough electricity to activate the pump and fill a car’s tank.

In September 2011, some guy changing a transformer part in Arizona knocked out power in Arizona, Mexico, and all the way to San Diego, Calif. In May 2011, this column discussed the “Stuxnet” computer worm that attacked Iranian centrifuges—and consequently warned that a computer cyberwar could happen to the U.S. as well. However, upon learning about solar storms, perhaps cyber-warfare is the least of our worries. Suppose someone is driving along listening to constant “recalculating” on the GPS because of a solar flare that zapped the satellite when an airliner, flying four miles up in the air loses all navigation at the same time. We have recently learned that many pilots, because of the computerized controls, may no longer know exactly what to do in an emergency, and so down comes the airplane onto the car. “Hello, is this the Claims Hotline?”

Insurance for Solar Storms
One purpose of Thomson Reuters West’s CAT Claims text is to explore what insurance might be available for disasters. As this was being written in October 2011, it was not clear yet what Congress was going to do about renewing the National Flood Insurance Program (NFIP), which is the subject of Chapter 13 in CAT Claims. If the program is renewed, what impact will the deficit reduction debates have on the amount of funding FEMA will be given? Hopefully this author will know by the time for the next supplemental update. Will the program be expanded or reduced? Will wind insurers be mandated to add flood insurance to building and dwelling forms–and will that add any coverage for indirect loss? What will that do to premiums? These are all good questions.

What about those solar flares? Has the Insurance Services Office Inc. added “space events” to the list of perils covered in the various forms? AAIS “open peril” forms on computers, for example, would not exclude damage from power surges or interruption as a coverage extension (cyberwar or hacking is excluded), but the loss of data might be limited in such policies. Named peril policies would undoubtedly not cover such losses, but the Commercial Property Special Form (CP 10 30 06 07) does exclude power failure, although undoubtedly there will be court cases over the “artificially generated electrical current” wording; a solar flare is not exactly “artificial.”

Any world-wide natural or man-made disaster will be sending claims adjusters and attorneys scrambling to check the fine print in policies. What is and what is not covered (or what is limited in coverage) will be a major issue in something like a solar storm. When the storm knocks out the computers it may even be necessary for claims adjusters to do the unthinkable: look it up in a textbook. (Those textbooks had better be kept current.)

Those Other Disasters
Astronomers tell us that it is unlikely that Earth will be struck by an asteroid in this century. How about future centuries? Who knows? What about a comet? That is a more likely event, but then, how much damage can a lump of ice do after entering Earth’s atmosphere? The named peril there is “falling objects.” Nobody ever thought a 9.0 magnitude earthquake could trigger a Pacific-wide tsunami either. What about that volcano bubbling under Yellowstone? Scientists say that when that blows up, Wyoming will end up in New York. Like scenes from the nuclear war movie, On the Beach, civilization could just disappear like the dinosaurs. Global warming will put New York City and other seaports under water, but Chicago, Denver, and Dallas should still be high and dry, just a bit more crowded. Volcanic eruption is now a standard named peril in most property policies. The last time there was such a major loss was May 1980, when Washington’s Mount St. Helens exploded. The peril was added to policies after that event.

It is important to keep in mind that disasters are not all connected to nature; economic disaster has struck and is still a world-wide concern. Greece may default, as might other European Union nations. The U.S. came close to default, but that was a political stunt, not a real economic calamity. One might suggest that the U.S. does not have unemployment or even immigration problems. Rather, it has a population problem, with too many people in the wrong place with the wrong set of skills and the wrong abilities to conform to a globalized technology-based 21st century.

Yet, even those nations that do seem to be coping better with those specific problems are being fooled. China, for example, rushed to build the world’s fastest rail line. It was, however, built with rampant fraud, inferior construction, and poor planning. Already hundreds have been killed in high-speed collisions; managers and contractors have gone to jail. China may have been first with the fastest, a train that travels at more than 300 miles per hour, while the best the U.S. can manage is 125 miles per hour on Acela for a very short stretch (the rest of Amtrak is limited to a maximum of 79 miles per hour), but we may find that for all our fast technology something as simple as a solar storm can destroy it in minutes.

As to the October column on cell phones: For those not driving and talking, those just talking on cell phones are driving others mad. Imagine the consternation of the performer giving a concert when the cell phone of someone in the audience starts blasting “The Stars and Stripes Forever” in the middle of the Second Movement. Commuter trains are now offering “quiet car” coaches where cell phone usage is not permitted. Worse yet, reported Passenger Train Journal, “Lack of cell phone courtesy has become a societal bone of contention in recent years. A woman’s incessant cell phone yammering on board the Coast Starlight (between LA and Seattle) led to her removal from the train and charges of disorderly conduct. Reports indicate the woman was on her phone loudly and nonstop for the entire 16 hours she was aboard. When repeated complaints from other passengers and repeated warnings from train crew members failed to stifle her rude, inconsiderate behavior and she became threatening, the police escorted her off the train.”

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