Last summer, Lloyd’s of London caused a stir by issuing a report on the potential impact of a hypothetical cyber-attack on the Northeast power grid.  The economic cost of the attack – delivered via malware affecting key generators – was estimated to be as high as $1 trillion, with the direct cost to insurers as much as $71 billion.

As the report pointed out, the modern power grid is digital and interconnected.  That brings huge benefits to utility providers and to their customers, but it also means that an attack on the grid can have far-reaching effects.   For insurers, one of the major concerns is that much utility coverage was underwritten in an earlier time, before the emergence of digital threats.  As a result, the utilities tend to believe that their existing insurance would protect them in the event of a successful cyber-attack, even if that is not the case.

Business owners and even homeowners face some of the same concerns.  If the power grid is taken down by malevolent hackers – or by “natural” causes such as solar storms — businesses face losses from business disruption, from the spoilage of perishable goods, from robbery and looting, and from untold other sources.  Homeowners may not be able to rely upon fire and police departments or in-house security systems to prevent physical damage or deter crime.

Sophisticated property and casualty insurers are collecting data, modelling risk and helping utilities and other clients not only minimize the likelihood of a successful attack on the grid but also to develop effective response mechanisms.  Grid failure is a national security concern, of course, and utilities, business groups and insurers are working with government at all levels to identify potential weakness, strengthen barriers and formulate contingency plans.  No one wants to experience a large-scale grid failure, but insurers can play a key role in helping utilities, businesses and individuals prepare for any eventuality.

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