Solar activity predicted to peak in early 2015 may release powerful geomagnetic energy that can disrupt electric grids, causing widespread blackouts and disrupting markets, says Lloyd's of London.

“One of the reasons that we are interested in activity on the sun in 2015 is that it has the potential to cause more damage now due to our increasingly complex electric systems and rapidly rising dependence on electricity,” Neal Smith, emerging risks and research manager at Lloyd's, tells PC360.

The insurance implications would start with contingent business interruption (CBI) claims, says Lloyd's in its report. Although standard CBI policies usually require evidence of physical damage to equipment, it might apply if transformers were to explode because of space weather.

Furthermore, power disruption could lead to the cancellation of the services the public has come to depend upon for transportation and entertainment, such as flights and arena events, which could lead to liability claims if people were put at risk. If customers believe companies did not take enough protective measures during a blackout, D&O claims could follow.

Geomagnetic storms–disturbances of our planet's magnetic field mingling with cyclic sunspot activity in the upper layers of the atmosphere–have overloaded power grids in the past and damaged expensive and difficult-to-replace transformers.

Sunspots are known to wax and wane every nine to 14 years, and major activity flares every 150 years. The most massive solar storm known to man occurred in 1859, which Lloyd's says means that Earth may be overdue for another tanning session. According to Scientific American, the 1859 storm created aurorae around the world so strong that people in the Northern U.S. could read by its light- although telegraph systems all over Europe and North America failed.

“Unfortunately for us, the Northern regions of the Americas and Europe are most susceptible to geomagnetic energy. The developed North American grid is also older, so it could be susceptible to these storms,” says Smith.

In March 1989, the strongest geomagnetic storm ever measured collapsed the Canadian Hydro-Quebec power grid in two minutes. As a result, more than six million people lost electric power for nine hours. The blackout's economic cost weighed in at about USD$12.7 billion.

In 2003, solar flares caused a four-day grid disturbance and blackout in the northeast U.S. and eastern Canada. A group of supermarkets suffered food spoilage and lost business as a result. The supermarkets paid $5.5 million in premium for their insurer, Liberty, to pay for the losses; however, Liberty denied coverage because its policy only applied to physical damage to off-premises electrical plants and equipment.

Because the policy didn't define “physical damage”, the trial court ruled in favor of Liberty's argument that it was the grid's safety feature that shut down the generators and transmission equipment when hit by the storm, instead of malfunctions. However, that ruling could be overturned if a transformer is damaged because of an ageing power system.

Smith says, “The aim of the report, as with many rising risks, is to hopefully raise awareness among governments and energy companies to act now to study the defenses of the electrical system, rather than wait for a huge storm to occur. Mitigation is a better strategy [than paying for damage later].”

Factors like a city's geomagnetic latitude, ground conductivity and distance from the coast's highly conducive seawater can make certain regions more susceptible to geomagnetic storms than other. Unfortunately, that places much of North America, like New York and Washington, D.C., along the invisible lines that attract the sun's electric energy.

Well-planned infrastructure, though, such as the connection of transmission lines, transformer construction and the presence of capacitors designed to block the flow of magnetically-induced currents act as a modern sunscreen against solar activity.

Special Reports /

Space Weather Forecast: Blackouts with a Chance of Business Interruption

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