August 2014: Ice Storms Knock Out the Grid in the Northeast
> The increasingly glaring combination of extreme weather and vulnerable
infrastructure give even more credence to a Black Swan scenario we
constructed in 2014: that a series of ice storms (two major ones would
suffice) could cripple the grid in the Northeast. All it would take is two very
heavy ice storms over three days to potentially cripple electrical service to
millions. Were that to occur, our sources at the time stipulated that insured
losses could reach between $9.5 billion and $15.5 billion.
August 2015: Welcome to the ARkstorm > The prospect of a
superstorm buffeting California for more than 40 days isn’t a fantasy. Atmospheric rivers,
or ARkstorms, struck California at least six times, according to studies by geologists. Our
2015 scenario, as dreadful as it may be to consider, projected $400 billion in property
damage, only $20 billion to $30 billion of which would be recoverable, should torrential
rains drench California for weeks and drown its infrastructure, its agriculture and many
of its iconic landmarks. The most recent ARkstorm was 1861. Flooding closed the
capital of Sacramento and the whole Central Valley became a lake.
August 2016: Political Black Swans
> In August of 2016 we wrote about populist swells, swept to a fever pitch by anger,
alienation and the Internet that could cause major political disruption. In November of
2016, just such a disruption took place, as businessman and reality television star Donald
Trump was elected as the 45th president of the United States. Now the compliance
and agreement of the U.S. in everything from the Paris Climate Change accord, to the
North American Free Trade Agreement, to our support for NATO is uncertain.
A LOOK BACK
Since August of 2013, Risk & Insurance writers and editors have
interviewed academics, government officials, reinsurers and risk
consultants to get their take on Black Swans, very rare events that could
strike with catastrophic severity.
Here are a few examples of Black Swan events we’ve written about
over the past five years. At the time we wrote about many of them, they
seemed almost fantastical. Yet, with each passing year, the likelihood of
them occurring seems to increase.
Interconnectivity, whether it be the grid, or the digital economy, is the hallmark of our new global marketplace, But as our 2017 Black Swan coverage will illustrate, it may also be our greatest weakness. The aggregation risks should the grid in the United States be knocked out— or our cloud services attacked — are concerns shared by underwriters
and risk managers.
There is no off-the shelf product to counteract these risks. They could strike
at any moment with catastrophic severity.
Counteracting them will require expert execution in the art of spreading
risk, either through more astute contracts with vendors and customers, or much
better communication, and of course policy writing, on the part of the carriers
and their insureds.
Coverage of these matrix-related Black Swans begins on page 27.
This marks the fifth year that Risk & Insurance editors and writers outlined
the risks of Black Swans. A look back at some of our previous Black Swan
coverage is below. — Dan Reynolds