Black Swans

The Darkness of the Sun

A fast-moving geomagnetic storm blasts the North American power grid, leaving a large swath of the Northeastern U.S. temporarily uninhabitable.
By: | August 3, 2015 • 10 min read

“Daddy, wake up! Come see the rainbows!” 6-year-old Amanda LeBlanc insisted as she shook her father out of his slumber. Joel LeBlanc stirred slowly, feeling like he hadn’t slept at all.

“What? Go back to bed,” he grumbled, rolling over.

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“No, Daddy you have to look,” insisted Amanda, throwing the bedroom curtains wide open. Joel squinted at the light, confused. It was way too early for sunrise, wasn’t it?

Joel hoisted himself out of bed and joined his daughter at the window, catching his breath at the sight. “Huh. You know what that is, honey? It’s called an aurora. Don’t see that every day — not in Florida anyway.”

“I’m going outside to take a picture,” Amanda declared, cantering off.

Northward, there was less wonderment and more worry. Scientists had warned that week of a large coronal mass ejection (CME) that the sun had hurled toward Earth. Only three days later, it was followed by a pair of still-larger CMEs. The latter two bursts combined during their brief journey from the sun, pushing billions of tons of highly charged particles toward Earth at unprecedented speed, thanks to the path cleared by the earlier blast.

Scientists’ predictions on the size and speed of the event fell short of the mark. But even if they’d been right about everything else, they couldn’t have gauged that the CME’s magnetic field was aligned in a way that left Earth at its most vulnerable, allowing the maximum infusion of charged plasma into the Earth’s magnetosphere. It was a recipe for a perfect solar superstorm.

Video: This 1:31 minute time lapse video by Brendan Hall shows an aurora borealis in Kalispell, Mont., that occurred over 1.5 hours in June 2015.

By the time the NOAA Space Weather Prediction Center issued an urgent warning, there were only minutes left to act. Power generation companies kicked into emergency mode, working to mitigate the impact by taking transformers offline.

But even large generators couldn’t act fast enough. Geomagnetically induced currents flowed into the power grid in a matter of minutes, overheating extra-high-voltage (EHV) transformers and frying coils, destroying or damaging hundreds.

The North Atlantic corridor was hardest hit, thanks to higher ground conductivity along the coastline. In short order, upwards of 35 million people from New York City to Washington, D.C. were suddenly without power. There was an eerie stillness that morning as schools and many businesses were forced to remain shuttered.

Backup-generator owners went in search of fuel, but most gas pumps had stopped functioning immediately or soon afterward.

ATMs were all down. Within hours, land and cell phones would fail, and water could no longer pump. Worse, wastewater treatment plants shut down, causing sewage to overflow into drinking water.

Beyond the area affected by the power outage, disruptions to global positioning systems and satellite communications wreaked havoc with cellular networks, financial transaction processing and logistics operations.

The hardy Northeasterners made the best of it at first, boiling water on camp stoves, firing up barbecues and grilling the thawing food from their freezers. But before the week was out, nerves had frayed. Residents and businesses demanded answers from utilities and government officials.

The news was bad — very bad. It’s not as if hundreds of EHV transformers were warehoused waiting to be called into service. Replacements had to be ordered. and replacement for any given transformer would be at least five months and possibly up to a year or even longer, given the high level of need and the short list of manufacturers.

Units coming from foreign manufacturers would take even longer, involving arduous and complex transportation arrangements.

Residents and business owners were stunned. Public officials explained that with no power or fuel, no water pumps or waste treatment facilities, no readily accessible food supply and badly strained emergency services, there was no option other than to evacuate the affected regions.

The impact to the economy was staggering. National companies struggled to maintain communications with evacuating employees, while putting plans in place to shift operations to other locations. But an overwhelming number of small and mid-sized local businesses without the means to relocate simply folded.

Companies with business interruption or contingent business interruption policies presumably triggered by the mandatory evacuation breathed a sigh of relief, not yet aware of the lengthy battles they’d face later on about whether or not fried transformers, or the incapacity of the power grid itself, constituted a property damage trigger under policy terms.

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Supply chains nationally and globally faced upheaval as companies raced to secure secondary suppliers. Those select few companies that had chosen to take up supply chain coverage quietly congratulated themselves and used the opportunity to its fullest advantage while their competitors faltered.

Once the dust had settled, much of the North-Atlantic corridor was a patchwork of ghost towns. Members of the Army and National Guard were stationed in the region to curtail damage from looters and gangs who evaded evacution, sometimes squatting in unoccupied buildings and setting fires at night for light and warmth. Many buildings that hosted squatters would eventually need to be condemned.

Two years later, a handful of transformers still awaited replacement. Only a fraction of the evacuated population had returned, and local governments struggled to rebuild long-vacant communities. Estimates calculated the total economic cost at upwards of $2 trillion.R8-15p30-32_03Carrington.indd

The Inevitable Storm

The largest solar storm in recorded history occurred in 1859. It was dubbed the Carrington Event, after British astronomer Richard Carrington, who witnessed the megaflare. He was the first to realize the link between activity on the sun and geomagnetic disturbances on Earth.

During the event, Northern Lights were reported as far south as Cuba and Honolulu. The flares were so powerful that people in the Northeastern United States could read their newspapers just from the light of the aurora. U.S. telegraph operators reported sparks leaping from their equipment — in many cases setting fire to nearby materials.

Now, take a storm of that magnitude and let it play out in the modern world. Far smaller events have occurred many times. One such storm struck in 1989, taking out Quebec’s power grid in less than two minutes, causing $6 billion in damages and leaving millions of people without power for nine hours.

For the sake of comparison, scientists measure these storms using an index based on nano-Teslas (nT). The lower the number, the harder the Earth’s magnetic field shakes when a storm hits. The Quebec storm in 1989 measured at -589 nT. The far more powerful Carrington Event is estimated at around -850 nT.

And then there was a near miss in July 2012. Had that solar blast occurred only one week sooner, the Earth would have been directly in its path, and scientists calculated the storm would have clocked in at up to -1,200 nT. The fabric of society would have been profoundly altered, and we would still be picking up the pieces today.

“The concern becomes, now that we know, do we make the choice to act?” — Kyle Beatty, president, Verisk Climate

There is more or less universal agreement among experts and scientists that another Carrington-level event or stronger is an inevitability — the only uncertainty is when. Some experts even opine that this kind of event shouldn’t even be called a Black Swan, because the probability is higher than most might realize.

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In an article published in the journal “Space Weather” in 2012, solar scientist Pete Riley of Predictive Science Inc. calculated that the probability of a solar storm at the power of the Carrington Event or stronger in the next 10 years is around 12 percent.

The potential impact of such an event to our hyper-connected, electricity- and satellite-dependent society is a sobering prospect, and one that is netting an increasing amount of interest.

In 2013, Lloyd’s published the report that our scenario is partially based on, “Solar Storm Risk to the North American Power Grid,” in partnership with Atmospheric and Environmental Research Inc. (AER), a division of Verisk Climate.

Kyle Beatty, president, Verisk Climate

Kyle Beatty, president, Verisk Climate

“This is a topic that is drawing strong interest in the government levels at a national and international scale, because the impacts could be so large and because this is one of the only natural perils that could create simultaneous impact across continents,” said Kyle Beatty, Verisk Climate president, who worked on the study. “… When we get into an event of this size, it would impact Europe as well — it’s a global phenomenon.”

“We understood that the engineering and science communities were talking about space weather as a potentially high impact phenomenon,” added Nick Beecroft, emerging risks and research manager at Lloyd’s of London.

“But we felt that the understanding of the phenomenon and the potential impact on the insurance industry was very limited.”

Doomsday Assumptions

Experts stress that while it’s popular to paint this level of solar superstorm as a virtual “doomsday” event, that outcome need not be the case. The key is to commit to doing something about it now.

Nick Beecroft, emerging risks and research manager, Lloyd’s of London

Nick Beecroft, emerging risks and research manager, Lloyd’s of London

Since the 1989 Quebec storm, the Canadian government has invested $1.2 billion into protecting the Hydro-Quebec grid infrastructure. But you have to wonder how many billions could have been saved if that investment had come sooner.

“If we were to experience a major solar storm event — and I really should say it’s a question of when, not if — there could be extreme ramifications for power grids and for all those technologies that rely on satellite navigation systems,” said Beecroft.

It would require worldwide cooperation and investment to build in resilience to key systems, he said, as well as enhanced satellite systems and technology to improve monitoring and early warning systems for space weather events. In addition, it’s likely there would be “much greater demand for specific insurance products that would be able to respond to an event like this.”

At the risk manager level, Beecroft said, organizations around the world should be thinking “about how they can diversify their reliance on power systems and on key technologies.”

But Beecroft and other experts drive home that there is simply no reason for all of these things to happen after the fact.

“The concern becomes, now that we know, do we make the choice to act?” Beatty asked.

Something else that needs to happen sooner rather than later is the development of strong plans and procedures, especially on the part of power generation companies, said Lou Gritzo, vice president of research at FM Global.

Lou Gritzo, vice president of research, FM Global

Lou Gritzo, vice president of research, FM Global

Gritzo said the nonprofit North American Electric Reliability Corp. (NERC) has already developed recommendations to help power generators respond in such an event.

“The big wildcard is, when push comes to shove and power generators have to make those difficult decisions about what they’re going to do, do they do the right things? And how many of them do the right things?” he said.

The ideal scenario, said Gritzo, is that when the storm hits, the power generators most likely to be affected by the storm disconnect their power supply from the grid and adequate power can be temporarily supplied to the grid by other generators in areas where the storm is not going to be as intense.

The ability to make that happen quickly, said Gritzo, could go a long way toward shifting from a doomsday scenario to one of minimal consequences.

He also said risk managers should be asking power suppliers some hard questions to help them assess the need for additional investments, such as a backup power system.

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Not taking any action would be a mistake. “If there’s one number in this whole report that’s significant,” said Beatty, “it’s the estimate that the return period of a Carrington-like event is estimated at around 150 years,” a figure that can be backed up with evidence tracing back to 17 B.C.

Bottom line, he said, is that “the likelihood is high enough that we actually have a responsibility to act.”

BlackBar

Additional 2015 Black Swan coverage:

TURNERWelcome to the ARkStorm

A 45-day superstorm floods California and dishes out economic catastrophe.

R8-15p26-28_02Bomb.inddTo Clean Up a Dirty Fight

A dirty bomb detonated in Manhattan could make a ghost town of the most populous city in the U.S.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

High Net Worth

High Net Worth Clients Live in CAT Zones. Here’s What Their Resiliency Plan Should Include

Having a resiliency plan and practicing it can make all the difference in a disaster.
By: | September 14, 2018 • 7 min read

Packed with state-of-the-art electronics, priceless collections and high-end furnishings, and situated in scenic, often remote locations, the dwellings of high net worth individuals and families pose particular challenges when it comes to disaster resiliency. But help is on the way.

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Armed with loss data, innovative new programs, technological advances, and a growing army of niche service-providers aimed at addressing an astonishingly diverse set of risks, insurers are increasingly determined to not just insure against their high net worth clients’ losses, but to prevent them.

Insurers have long been proactive in risk mitigation, but increasingly, after the recent surge in wildfire and storm losses, insureds are now, too.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy,” said Laura Sherman, founding partner at Baldwin Krystyn Sherman Partners.

And especially in the high net worth space, preventing that loss is vastly preferable to a payout, for insurers and insureds alike.

“If insurers can preserve even one house that’s 10 or 20 or 40 million dollars … whatever they have spent in a year is money well spent. Plus they’ve saved this important asset for the client,” said Bruce Gendelman, chairman and founder Bruce Gendelman Insurance Services.

High Net Worth Vulnerabilities

Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

As the number and size of luxury homes built in vulnerable areas has increased, so has the frequency and magnitude of extreme weather events, including hurricanes, harsh cold and winter storms, and wildfires.

“There is a growing desire to inhabit this riskier terrain,” said Jason Metzger, SVP Risk Management, PURE group of insurance companies. “In the western states alone, a little over a million homes are highly vulnerable to wildfires because of their proximity to forests that are fuller of fuel than they have been in years past.”

Such homes are often filled with expensive artwork and collections, from fine wine to rare books to couture to automobiles, each presenting unique challenges. The homes themselves present other vulnerabilities.

“Larger, more sophisticated homes are bristling with more technology than ever,” said Stephen Poux, SVP and head of Risk Management Services and Loss Prevention for AIG’s Private Client Group.

“A lightning strike can trash every electronic in the home.”

Niche Service Providers

A variety of niche service providers are stepping forward to help.

Secure facilities provide hurricane-proof, wildfire-proof off-site storage for artwork, antiques, and all manner of collectibles for seasonal or rotating storage, as well as ahead of impending disasters.

Other companies help manage such collections — a substantial challenge anytime, but especially during a crisis.

“Knowing where it is, is a huge part of mitigating the risk,” said Eric Kahan, founder of Collector Systems, a cloud-based collection management company that allows collectors to monitor their collections during loans to museums, transit between homes, or evacuation to secure storage.

“Before, insurance was considered the only step in risk management. Now, our client families realize it is one of the many imperative steps in an effective risk management strategy.” — Laura Sherman, founding partner, Baldwin Krystyn Sherman Partners

Insurers also employ specialists in-house. AIG employs four art curators who advise clients on how to protect and preserve their art collections.

Perhaps the best known and most striking example of this kind of direct insurer involvement are the fire teams insurers retain or employ to monitor fires and even spray retardant or water on threatened properties.

High-Level Service for High Net Worth

All high net worth carriers have programs that leverage expertise, loss data, and relationships with vendors to help clients avoid and recover from losses, employing the highest levels of customer service to accomplish this as unobtrusively as possible.

“What allows you to do your job best is when you develop that relationship with a client, where it’s the same people that are interacting with them on every front for their risk management,” said Steve Bitterman, chief risk services officer for Vault Insurance.

Site visits are an essential first step, allowing insurers to assess risks, make recommendations to reduce them, and establish plans in the event of a disaster.

“When you’re in a catastrophic situation, it’s high stress, time is of the essence, and people forget things,” said Sherman. “Having a written plan in place is paramount to success.”

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Another important component is knowing who will execute that plan in homes that are often unoccupied.

Domestic staff may lack the knowledge or authority to protect the homeowner’s assets, and during a disaster may be distracted dealing with threats to their own homes and families. Adequate planning includes ensuring that whoever is responsible has the training and authority to execute the plan.

Evaluating New Technology

Insurers use technologies like GPS and satellite imagery to determine which homes are directly threatened by storms or wildfires. They also assess and vet technologies that can be implemented by homeowners, from impact glass to alarm and monitoring systems, to more obscure but potentially more important options.

AIG’s Poux recommends two types of vents that mitigate important, and unexpected risks.

“There’s a fantastic technology called Smart Vent, which allows water to flow in and out of the foundation,” Poux said. “… The weight of water outside a foundation can push a foundation wall in. If you equalize that water inside and out at the same level, you negate that.”

Another wildfire risk — embers getting sucked into the attic — is, according to Poux, “typically the greatest cause of the destruction of homes.” But, he said, “Special ember-resisting venting, like Brandguard Vents, can remove that exposure altogether.”

Building Smart

Many disaster resiliency technologies can be applied at any time, but often the cost is fractional if implemented during initial construction. AIG’s Smart Build is a free program for new or remodeled homes that evolved out of AIG’s construction insurance programs.

Previously available only to homes valued at $5 million and up, Smart Build recently expanded to include homes of $1 million and up. Roughly 100 homes are enrolled, with an average value of $13 million.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work.” — Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“We know what goes wrong in high net worth homes,” said Poux, citing AIG’s decades of loss data.

“We’re incenting our client and by proxy their builder, their architects and their broker, to give us a seat at the design table. … That enables us to help tweak the architectural plans in ways that are very easy to do with a pencil, as opposed to after a home is built.”

Poux cites a remote ranch property in Texas.

Curt Goetsch, head of underwriting, Private Client Group, Ironshore

“The client was rebuilding a home but also installing new roads and grading and driveways. … The property was very far from the fire department and there wasn’t any available water on the property.”

Poux’s team was able to recommend underground water storage tanks, something that would have been prohibitively expensive after construction.

“But if the ground is open and you’ve got heavy equipment, it’s a relatively minor additional expense.”

Homes that graduate from the Smart Build program may be eligible for preferred pricing due to their added resilience, Poux said.

Recovery from Loss

A major component of disaster resiliency is still recovery from loss, and preparation is key to the prompt service expected by homeowners paying six- or seven-figure premiums.

Before Irma, PURE sent contact information for pre-assigned claim adjusters to insureds in the storm’s direct path.

“In the high net worth space, sometimes it takes longer potentially to recover, simply because there are limited contractors available to do specialty work,” said Curt Goetsch, head of underwriting for Ironshore’s Private Client Group.

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“If you’ve got custom construction or imported materials in your house, you’re not going to go down the street and just find somebody that can do that kind of work, or has those materials in stock.”

In the wake of disaster, even basic services can be scarce.

“Our claims and risk management departments have to work together in advance of the storm,” said Bitterman, “to have contractors and restoration companies and tarp and board services that are going to respond to our company’s clients, that will commit resources to us.”

And while local agents’ connections can be invaluable, Goetsch sees insurers taking more of that responsibility from the agent, to at least get the claim started.

“When there is a disaster, the agency’s staff may have to deal with personal losses,” Goetsch said. &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]