Like earthquakes that gradually build up stress before releasing it in sudden ruptures, the sun undergoes cycles of mounting magnetic tension. This cyclical solar activity occurs about every 11 years, marked by phases of low and high activity, known as solar minimum and solar maximum. During the solar maximum, the sun unleashes powerful forces, including solar flares and coronal mass ejections, which can significantly disturb Earth's magnetosphere, leading to geomagnetic storms that may disrupt communication systems, power grids and satellite operations.
We are currently in solar cycle 25, which began in December 2019 and is expected to reach its peak around July 2025.
Earthly consequences
In May 2024, the world experienced the most powerful solar storm in over 20 years. While these solar outbursts are spectacular to observe, they also have the power to significantly affect our technology-dependent society. Recent disruptions include:
- Satellite failures - In February 2022, two coronal mass ejections caused up to 40 Starlink satellites to re-enter Earth's atmosphere shortly after launch, costing about $25 million.
- Communication disruptions - In December 2023, one of the largest solar radio events disrupted radio aircraft communications. In November 2015, a solar storm closed Sweden's airspace, disrupting flights.
- Power outages - A major coronal mass ejection in March 1989 significantly interfered with the U.S. power grid and caused a nine-hour power failure in Quebec, costing $13.2 million.
Not quite black or white
Solar flares epitomize the concept of a grey swan event. Unlike black swans, which are unpredictable and exceptionally rare events with severe consequences (such as the 2011 Tōhoku earthquake), grey swans like solar flares are not entirely unforeseen. They are characterized by some level of predictability based on historical patterns or scientific forecasts.
The challenge with solar flares lies in their irregular occurrence and significant variance in intensity, making accurate predictions difficult. Consequently, existing underwriting processes inadequately account for the risks posed by solar flares due to the lack of a reliable predictive model and limited historical loss experience.
The most powerful solar storm in known history
The great geomagnetic storm of 1859 – known as the "Carrington Event" after the British astronomer who reported it - caused telegraph systems in Europe and North America to fail. More than 150 years later, our planet has yet to experience a solar storm comparable to the Carrington Event.
But we should not assume the odds of a similar event in our future are zero. According to the growth rings of trees, Earth has been hit by at least six solar events larger than Carrington, by an order of magnitude or more, during the past 10,000 years.
If such an event were to occur again today, the impacts would be unprecedented. With advancements in technology and increased dependency on electronic systems, our society would be intensely vulnerable and severely affected by a modern-day Carrington Event.
Estimating the potential effects on vehicles, property and power grids is challenging due to limited historical precedents. However, current best estimates indicate that U.S. insurance industry losses could range between $71 billion and $433 billion (in 2024 dollars), with global losses significantly higher. To put these figures into perspective, Hurricane Katrina in 2005 resulted in insured losses of approximately $105 billion (in 2024 dollars), and total insured losses from all natural catastrophes in 2024 reached approximately $140 billion.
Unlike other natural disasters, which are often regionally confined, the effect of a Carrington-style event would be global - directly affecting supply chains and disconnecting large populations from power for weeks or months. The wide range of potential outcomes demonstrates the significant financial implications that solar flares could impose.
A near miss
As we approach the peak of solar cycle 25, the likelihood of severe solar storms – and their potential effect on the insurance industry and global economy – is on the rise. A near miss in July 2012 highlights the risk: A solar storm comparable in magnitude to the Carrington Event erupted, but Earth was not in the line of impact.
Recent research from Lloyd's estimates that a storm of this severity could inflict global economic losses of up to $2.4 trillion over a five-year period, with potential losses ranging from $1.2 trillion to $9.1 trillion. These figures correspond to a reduction in global GDP between 0.2% and 1.4% over that time frame. This event emphasizes the need for robust preparedness as we near a solar maximum.
By developing scenarios, such as a repeat of the Carrington Event, risk managers will be in a better position to understand and quantify exposures to geomagnetic storms and potential financial losses, including both direct and indirect impacts.
Disaster preparation is also key. This should include implementation of measures to mitigate the risks associated with solar flares, development of contingency plans for rapid response, and ensuring risk management frameworks account for the potential scale and scope of solar flare impacts. Also, using insights from near-misses will enhance preparedness and resilience plans, as well as ensuring adequate insurance coverage and robust business continuity plans are in place.
Ultimately, when it comes to solar storms and their potential to disrupt our modern world, it's not a matter of if, but when.
