Solar Storms: the next Black Swan? How Would The USA be affected?

Black Swans have been used extensively to describe previously unknown events of extreme impact/severity but with unknown or remote likelihood since Nassim Nicholas Taleb’s[1] publication in 2007 of The Black Swan: The Impact of the Highly Improbable. A key takeaway from this book is that predicting the timing of these rare events is wasted effort, but preparing to respond to them is highly valuable.

In mid-2016, the Helios Solar Storm Scenario was published by Cambridge Centre for Risk Studies[2]. In this report three scenarios were described for when solar storms occur — essentially a massive pulse of energy[3] generated by our sun that travels in all directions and, should they hit the Earth, have the ability to disrupt or destroy anything that uses or carries an electric charge.

Apparently these solar storms run in an 11 year cycle with the last one being in August 2010. Therefore, the susceptible assets (generation, transmission and use of electricity for the masses) has experienced about 12 of these cycles yet no major issues have been reported. However, think of the growth in the use of electricity in the last 20-30 years, from extensive domestic use of electrical equipment, through computers and mobile devices. Heck, the iPhone came out in 2007.

The Helios report scenarios estimated that in the USA:

  1. 90m people affected, 6 months to restore full power, cost to economy of $474bn
  2. 145m people affected, 8 months restoration time, and $1,532 bn
  3. 145m people affected, 12 months restoration and $2,693bn

If such a large solar storm should happen, the impact is clearly extensive, and there is virtually no way to respond to prevent the interruption. There are, however, opportunities to mitigate the impact. Perhaps an investment in portable generators could partially offset the severity from a financial loss perspective. Whatever could happen, businesses and individuals need to have plans to respond.

Fortunately these plans will probably be usable for a wide range of “black swans” with little modifications. Keeping the plans simple may be the key.

[1] https://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb
[2] http://www.jbs.cam.ac.uk/faculty-research/centres/risk/
[3] https://en.wikipedia.org/wiki/Electromagnetic_pulse

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Russell McGuire

Russell McGuire joined Riskonnect in January 2012 as director, enterprise risk services. Russell is a proven leader in the insurance and risk management field, with more than 25 years of experience. He was a member of the Technology Advisory Council of Risk and Insurance Management Society and served on the ERM Committee at RIMS for three years. Russell came to Riskonnect from Milliman, Inc., as a Senior Consultant and Product Manager, where he evaluated and designed Governance, Risk and Compliance (GRC) tools to support Enterprise Risk Management processes for clients. He worked with consultants in France, Germany, Italy, Holland and Great Britain. He developed ERM frameworks and provided consultation to clients on implementing ERM processes. He has also held positions at Alliance Data Systems, Risk Labs and Tillinghast-Towers Perrin.

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