Risk management and insurance industry perspective on cosmic Hazards #51

Abstract

“A good rule of thumb is to assume that everything matters.” Richard Thaler Quantifying risk is a survival mechanism innate to the human race. From the days cavemen built shelters to protect themselves from the elements, the goal has been to mitigate risk. In modern society, insurance, which spreads risk among many to protect the few who have losses, is the backbone of risk mitigation. The hazards addressed are those thought to have the highest probability of causing bodily injury or property damage. Fire, flood, hurricane, and earthquake are common perils covered by insurance. Cosmic hazards including meteors, coronal mass ejections, solar flares, and orbital debris-related accidents are rare events. Individuals, corporations, governments, and insurance companies do not believe the risk is relevant to them so they do not address it. Even the well-publicized recent meteor event over Chelyabinsk, Russia, causing $30 million in damages and wounding over 1,600 people certainly will not change this (Borenstein S, Russian meteor in chelyabinsk may mean space rocks pose bigger risk than we thought. Huff Post, Science. http://www.huffingtonpost.com/2013/11/06/russia-meteor-chelyabinsk-space-rocks-risk-studies_n_4227270.html Accessed Sept 2014, 2013). While cosmic hazards are off the radar, it does not mean that insurance is not available to cover the damage caused by them. The effects of cosmic hazards are similar to natural catastrophes and covered by insurance in the same way. Insurance policies are written covering all risks of loss with no specific exclusions for cosmic hazards. So, by default insurance companies are covering cosmic hazards. However, if the frequency or severity of hazards does reach consciousness, then insurers will limit coverage, charge a premium for it, or exclude it all together.