The rapid growth of new technologies such as nanotechnology also presents significant challenges to risk managers and (re)insurers. Nanotechnology, the science of manipulating matter at the molecular level, is already being used in numerous consumer and industrial products such as paint, fabric, cosmetics, treated wood, electronics and sunscreen. Its use is also expected to grow in areas such as medicine, pharmaceuticals, pollution clean-up and electronics. Despite the widespread use of nanomaterials in many products today, very little is known about the long-term implications on health or the environment.
Archive for the ‘Property’ Category
Having examined the three emerging risks of cyber, climate change and space in detail, it is clear they present serious threats to businesses and (re)insurers. Not only will the fallout from these risks result in losses we can currently anticipate and predict (such as increased property damage and liability vulnerability), but they also have the potential to trigger costly secondary impacts such as a breakdown in supply chains, reputational damage, disrupted power supplies and possibly others that are more difficult to foresee.
A powerful storm named Xaver battered Northern Europe with hurricane-force wind gusts and massive storm surges on December 6, causing widespread property damage and severely disrupting transport networks. The most severe damage was reported in the United Kingdom, Germany and the Netherlands. Around 1,400 properties were flooded in the United Kingdom alone after eastern coastal regions experienced the most severe storm surge since 1953. Coastal areas of Germany, including the city of Hamburg, were also subjected to severe surges and flooding. Less severe damage was reported elsewhere in Belgium, Denmark, Sweden and Poland. Reports said at least eight people were killed by the storm’s severe weather across Northern Europe and more than 500,000 homes lost power at the height of the storm. It remains too early to determine the likely economic and insured costs from Xaver. PERILS, the independent provider of European catastrophe insurance loss data, is currently analysing the impact of Xaver to assess whether it has caused a sufficient loss to qualify for full reporting under its methodology.
Space weather risks are difficult to quantify due to the lack of understanding and clarity about the likely duration and consequences of extreme events. However, it is clear the interconnected global economy that exists today is vulnerable to the risks posed by space weather. Indeed, extreme solar weather events have the potential to create systemic risk by triggering cascading failures across industries and regions.
Risks emanating from space pose a serious and real threat to the (re)insurance sector. Space debris and satellite collisions have the potential to cause losses in the millions or even billions of dollars, while extreme space weather has the potential to cause systemic failures across the globe. Although both risks are difficult to quantify given the uncertainty involved, (re)insurers have a responsibility to promote risk mitigating measures as the potential costs involved are considerable.
As the majority of historical events illustrate, higher geomagnetic latitude countries such as the United States, Canada and Nordic countries are most at risk of suffering the effects of extreme solar storms. (1) However, lower geomagnetic latitude regions such as the Caribbean and more central and southern parts of Europe could also be affected during extreme events. Other factors such as geology, proximity to the coast and location and fragility of power grid infrastructure help determine the risk posed by solar activity.
The severity of space weather varies as the Sun follows a consistent 11-year cycle of changing solar activity. The next cycle peak is expected between 2013 and 2015. Extreme geomagnetic events are nevertheless relatively rare, with return period estimates ranging from between 100 and 200 years to up to 500 years. (1) Less severe events are more frequent and often occur on an annual basis. The cumulative impact of milder disturbances should not be underestimated, however, particularly as our dependency on power increases and power infrastructure in some countries fatigues with age.
Solar weather is a space-related risk that has the potential to cause huge disruption to infrastructure and businesses around the world. Geomagnetic storm activity is not a new development but technological advancements and an increasingly interconnected global economy have resulted in increased vulnerability. Although extreme solar storms are relatively rare, there have been several notable recent events that have had a damaging impact on Earth. More are certain to occur in the future.
Major solar disturbances have the potential to cause significant losses as they can severely disrupt electricity supply, cause satellite damage and trigger GPS signal disturbance. The cascading impact of this would cripple critical infrastructure, including transportation and fuel supplies. Global supply chains would likely fail. If an extreme event were to occur today and result in long-term blackouts across highly populated areas, the impact on society and national economies would be devastating, causing billions or even trillions of dollars of losses. The impact on the (re)insurance sector would also likely be profound, affecting several lines of business.
Space weather refers to the variable conditions on the surface of the sun that can influence the performance of technology on Earth. Sudden bursts of plasma and magnetic field structures from the Sun’s atmosphere (called coronal mass ejections (CME)), together with solar flares, can cause disturbances that are capable of impacting satellites and technology on Earth’s surface in a matter of hours or days.
Severe CME events that hit Earth have the potential to cause significant damage and disruption. Although we can currently anticipate their arrival (the waves can reach Earth within 14 hours), the severity of the event cannot be determined until they are about an hour away. Mitigation by way of forecasting is therefore not currently possible.
While the Earth’s atmosphere acts as a protective barrier against the milder effects of CMEs, extreme events have the potential to impact the Earth’s magnetic fields and trigger geomagnetically induced currents (GICs). GICs flow through expensive conducting structures that are grounded to the surface and, depending on the extent of the disturbance to the Earth’s magnetic field, can massively disrupt electricity supplies by damaging transformers or tripping relays. Earthed electrical conducting material such as pipelines and railway lines could also be vulnerable.
Severe space weather also produces solar energetic particles, which can permanently damage high-value satellites in the Earth’s orbit described earlier in the report. Global communication networks, broadcasting and GPS technologies would consequently suffer significant disruption.
Space debris poses a serious risk to operational satellites, particularly in the low earth orbit (LEO) and geosynchronous orbit (GEO). Indeed, debris amounts are increasing as objects continue to collide with one another, producing more fragments. According to the U.S. Strategic Command’s Space Surveillance Network, more than 20,000 objects above ten centimeters in size are currently orbiting Earth. Of these, only some 1,000 are active satellites. For items measuring between one and ten centimeters, around 500,000 particles are thought to be orbiting Earth. Estimates suggest tens of millions of other particles smaller than one centimeter are circulating the planet. All this material is traveling at several kilometers per second, sufficient velocity to cause significant damage to operational satellites.
The most serious threat to high-value satellites and space infrastructures in the Earth’s orbit today is the risk of collision with other satellites or space debris. As more satellites are sent into the Earth’s orbit to provide services and technology we now take for granted, including global communications and broadcasting, air traffic control, weather forecasting and disaster management, the area is becoming increasingly cluttered with satellites (operational and defunct) and other fragments, enhancing the risk of collision. Although deorbiting strategies are in place for some modern satellites, tens of thousands of objects still circulate the planet at extremely high speeds.