Munich, Germany --- (METERING.COM) --- December 8, 2011 - Long lasting power blackouts could have significant impacts on society and the economy and may see persons and organizations facing huge uninsured losses, according to the German insurance group Allianz.
In a position paper, Power Blackout Risks: Risk Management Options, the company says that whereas short term power blackouts are experienced frequently on a local or regional level, for example caused by natural catastrophes like earthquakes, storms, floods or heat waves, societies are not familiar with large scale, long lasting blackouts. Traditional scenarios assume blackouts of only a few days and losses seem to be moderate. However, with longer lasting blackouts, which would most likely result from space weather or coordinated cyber or terrorist attacks, the impacts might be significant.
The paper continues that so far insurance companies have not been affected significantly beyond taking care of their own business continuity management in order to mitigate losses following a blackout. Risk transfer via insurance has usually required physical damage to either the insured’s assets or the assets of specific service providers to trigger a business interruption claim. But only 20% to 25% of business interruptions, such as supply chain disruptions are related to a physical loss.
Commenting, Michael Bruch of Allianz Risk Consulting said that covering business and supply chain interruptions without physical loss demands new risk transfer solutions. “Covering non-physical business interruption is unknown territory for most insurers.”
The company is developing customized solutions to support multinational clients, Bruch noted, adding that even shorter blackouts mean high economic losses for companies. “A blackout in financial trading could cause a loss of about 6 million euros per hour, and in telecommunications it would be 30,000 euros per minute. To mitigate losses, companies should prepare better first and foremost by assessing their preparedness for blackout events, their own vulnerability and that of their critical suppliers. Such scenarios should be reviewed and tested within a properly managed business continuity plan.”