Like earthquakes that gradually build up stress before releasing it in sudden ruptures, the sun undergoes similar cycles of mounting magnetic tension. This cyclical solar activity occurs about every 11 years, marked by phases of low and high activity, known respectively 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.
Sunspots — dark patches on the sun caused by magnetic fluctuations — are vital indicators of the sun’s magnetic activity and help predict the phases of the solar cycle. We are currently in solar cycle 25, which began in December 2019 and is expected to reach its peak around July 2025 (Figure 1).
Data source: Space Weather Prediction Center.
Readers fortunate enough might have observed visual displays of auroras in May 2024. This was a direct result of the most powerful solar storm since October 2003, reflecting the heightened solar activity that marks the ramp-up toward the solar maximum phase of the cycle. While these solar outbursts are spectacular to observe, they also have the power to disrupt our technology-dependent society significantly. Recent disruptions include:
These incidents underscore the capacity for substantial economic disruptions and considerable financial pressures on businesses, governments and particularly the insurance industry.
Solar flares epitomize the concept of a gray swan event. Unlike black swans, which are unpredictable and exceptionally rare events with severe consequences (such as the 2011 Tōhoku earthquake), gray 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. Their unpredictability and the scarcity of recent precedents complicate financial impact assessments. 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 strongest event in known history — the “Carrington Event” — occurred on September 1 and 2, 1859 (solar cycle 10). Named after the British astronomer who reported it, the storm caused telegraph systems in Europe and North America to fail. Some operators were still able to transmit messages even after disconnecting power, as the geomagnetic storm induced electrical currents in the telegraph wires. That evening, the auroras were seen worldwide. In Montería, Colombia, José Inés Ruiz painted an exceptional scene: “pitch-black stormclouds furrowed by blazes of strange resplendence” and “immense flaming tongues and blinding igneous globules … giving the impression of a hundred erupting volcanoes.”[6]
Now more than 130 years later, our planet has yet to experience a solar storm comparable to the Carrington Event (Table 1). But we should not assume the odds of a similar event in our future are zero. According to tree rings, the 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.[7]
| Event (solar cycle) | Disturbance Storm Time Index (nT) |
|---|---|
| September 1859 Carrington Event (10) | –1275 ±475 |
| February 1872 Chapman–Silverman storm (11) | ~–834 |
| May 1921 geomagnetic storm (15) | –907 ±132 |
| August 1972 solar storms (20) | –154 |
| March 1989 geomagnetic storm (22) | –589 |
| July 2000 Bastille Day event (23) | –301 |
| 2003 Halloween solar storms (23) | –422 |
| May 2024 solar storms (25) | –412 |
With advancements in technology and increased dependency on electronic systems, a modern-day Carrington Event could cause unprecedented economic and societal disruptions. Estimating the potential impacts on vehicles, property and power grids is challenging due to limited historical precedents and modeling studies; however, current best estimates indicate that U.S. insurance industry losses, were such an event to occur today, could range between US $71 billion and $433 billion (in 2024 US$),[8] with global losses significantly higher.
To put these figures into perspective, consider other notable natural disasters (Figure 2):
$105 bn 2024 equivalent approximate insured losses of 2005 Hurricane Katrina
$140 bn exceeded in total insured losses from all natural catastrophes in 2024
The wide range of potential outcomes demonstrates the significant financial implications that solar flares could impose. Unlike other natural disasters, which are often regionally confined, the impact of a Carrington-style event would be global — directly affecting supply chains and disconnecting large populations from power for weeks or months.
As we approach the peak of solar cycle 25, the potential for severe solar storms and their impact on the insurance industry and global economy intensifies. Although the likelihood of a catastrophic solar event occurring remains low, it is not zero.
A near miss in July 2012 highlights the risk: A solar storm of comparable magnitude to the Carrington Event erupted,[9] but Earth was not in the line of impact. Lloyd’s latest research estimates that global economic losses from a severe storm like this one could reach $2.4 trillion over a five-year period, with losses ranging from $1.2 trillion in the least severe scenario to $9.1 trillion in the most extreme. This is equivalent to a reduction in global GDP of between 0.2% and 1.4% over the period.[10] The small but significant chance (4%)[11] of a direct hit from this event emphasizes the need for robust preparedness as we near a solar maximum.
Comparing solar activity to familiar natural hazards highlights the unique challenges of these gray swan events. Unlike well-documented and often localized natural disasters, severe solar storms are less frequent and more far-reaching. Their implications include:
Develop scenarios, such as a repeat of the Carrington Event, to understand and quantify exposures to geomagnetic storms and potential financial losses, including both direct and indirect impacts.
Implement measures to mitigate the risks associated with solar flares. Develop contingency plans for rapid response and ensure risk management frameworks account for the potential scale and scope of solar flare impacts.
Use insights from near-misses to enhance preparedness and resilience plans. Ensure adequate insurance coverage and robust business continuity plans are in place.
