Danger in the Skies

Upon hearing the phrase “threat of asteroid impact,” insurers and risk managers in Canada almost invariably recall the Hollywood movie image of Bruce Willis blasting into space to save the day. Often viewed as a far-fetched natural catastrophe, asteroids, meteorites and comets — or near-earth objects (NEOs), as they are known collectively — are commonly assumed to be more likely to hit the silver screen than Earth, let alone our country’s major urban centres. But, recent research has advanced to the point of identifying specific objects and tracking them, improving our ability to predict an object’s future orbit. Scientists are now able to drum up a specific list of potentially threatening NEOs. The list, the scientific community says, will only get longer over the next decade as technology advances.

Of course not many good things will happen if an NEO collides with Earth. But the scientific community is careful to point out not all impacts are of the Armageddon-style magnitude popularized in film and books. The truth is that a smaller object, one with a diameter of less than 50 metres, has far greater chance of hitting the earth than an object stretching more than a kilometer in diameter. Even a small object, however, has the potential to cause regional devastation — especially if it hits near an urban area, or if it hits offshore from an urban area, causing a major sea wave.

The odds of such an event happening are miniscule when compared to the likelihood of a tornado or hurricane. It is safe to say NEOs rarely, if ever, come up as seminar topics or even water-cooler discussions within the professional circles of risk managers and (re)insurers. Still, as risk managers know, and as the scientific community is warning us now, just because an event is unlikely, does not make it improbable.

Members of the scientific community are suggesting that the (re)insurance industry give the matter some thought, since coverage for fallen objects is offered in most basic insurance policies. As a result, damages arising out of an NEO impact and its concomitant ripple effects could be on the (re)insurers’ tab — a cost that could make Hurricane Katrina’s estimated US$40-$60 billion price tag look like a drop in the bucket.

As Paul Kovacs, the executive director of the Institute for Catastrophic Loss Reduction, puts it: “I believe this is a very real threat that is unlikely, but has serious implications nonetheless.”

WHAT ARE THE ODDS?

In 2006, Kovacs received an invitation from the Association of Space Explorers to sit on a panel discussing asteroid threat mitigation. The panel is a two-year exercise; this year, in September 2008, the panel will be finalizing its findings and suggestions for threat solutions so the association can present its recommendations to the United Nations.

Although, as mentioned above, the probabilities of an impact are small, the consequences are too large to ignore, Kovacs believes. The suspected asteroid hit believed to have caused the extinction of the dinosaurs happened 65 million years ago. The Los Alamos National Laboratory in New Mexico suggests there is a 1 in 200,000 chance that a one-kilometer-diameter asteroid will hit Earth in any given year (a 10-kilometer diameter asteroid would carry the same punch as 300-million nuclear weapons, the facility estimates). But while Kovacs notes the chance of an Armageddon-style event may only be one in 1 million years, the chances of a smaller object hitting the Earth — an NEO less than 50 metres in diameter, for example — may actually be more in the neighbourhood of a one-in-1,000-year event, or maybe even a onein-200-year event, which would put it more in the likelihood category of a major earthquake event.

FALLING OBJECTS: ASTEROIDS AND METEORS

The insurance industry therefore should give serious consideration as to whether the majority of basic insurance policies — commercial, personal or auto — cover losses due to “fallen objects,” especially when such falling objects are hitting the Earth at estimated speeds of between 25,000 and 160,000 mph.

Casual conversations about asteroids commonly use the terms “asteroid” and “meteor” interchangeably, although NASA classifies the objects differently. “In space, a large rocky body in orbit about the Sun is referred to as an asteroid or minor planet whereas much smaller particles in orbit about the Sun are referred to as meteoroids,” NASA notes on its Web site page devoted to NEOs. “Today’s asteroids are the bits and pieces left over from the initial agglomeration of the inner planets that include Mercury, Venus, Earth, and Mars.”

Once a meteoroid enters the Earth’s atmosphere and vaporizes, it becomes a meteor (or shooting star), NASA notes. “If a small asteroid or large meteoroid survives its fiery passage through the Earth’s atmosphere and lands upon the Earth’s surface, it is then called a meteorite.”

NASA classifies potentially hazardous asteroids (or PHAs) as those that have the potential to make threatening close approaches to Earth. NASA is careful to note that although an approach is “threatening,” that does not actually mean it will hit the Earth. “There are currently 963 known PHAs,”NASA notes on its Web site.

SUDDEN IMPACT

Some international research into the insurance implications of a meteor strike is publicly available. For example, in 2002, in its Topics: Annual Review of Natural Catastrophes, Munich Re published a paper on the topic entitled ‘Meteorites (Another) Underestimated accumulation of Risk?’ The report lists several potential effects of an impact, ranging from direct impact, fire, explosions, air pressure waves and tsunamis or sea waves.

Bringing the risk closer to home, every year in Canada approximately 70 small meteorites fall to the earth, most burning up as they work their way through Earth’s atmosphere, observes Dr. Alan Hildebrand, an associate professor and Canada Research Chair at the University of Calgary’s department of geology and physics. These meteors have a diameter of less than 1 metre, usually about the size of a fist, Hildebrand says.

Surely an object of this size would cause minimal, localized damage. But the damage potential of a slightly larger object is a different story. An object with a diameter approximately 50 metres would likely have a 10-megaton release of energy, Hildebrand says. “If you take a rock that size, going 20 or 30 km-second, [once] its energy upon entering the earth’s atmosphere is dissipated, some of it goes into light just like a nuclear device,” Hildebrand explains. “If you’re close enough, that bright flash is searing heat, hot enough to start fires, etc.” For an ‘air-burst,’ which is when an object explodes as it enters the earth’s atmosphere before striking the ground, “the bulk of the energy goes into the shock wave and then the blast wave that radiates outwards.” If such an event were to occur over a city, Hildebrand says, the blast wave would carry the potential to level buildings and everyone and anything in its path.

The centennial anniversary of an event of such proportions recently passed on June 30. On this date in 1908, a meteorite believed to be of a diameter of between 50 and 60 metres exploded over the region of Tunguska in Siberia. Roughly 2,200 square kilometers of woodland were destroyed in the shock waves, leaving trees felled, charred and pointing outward from the nucleus of ground zero. The area of destruction, notes Munich Re, was equivalent to the sizes of Berlin, Moscow and London added together.

If an NEO larger than a few dozen metres in diameter were to strike a major urban centre, the insurance industry would sustain losses unlike anything it has ever experienced in its history, writes Kovacs and Andrew Hallak in ‘Insurance Coverage of Meteorite, Asteroid and Comet Impacts -Issues and Options.’ Kovacs and Hallak compare a potential strike on the scale of Tunguska to the 9/11 terrorist attacks on the World Trade Center. The insurance industry paid approximately US$21 billion for property damage and business interruption related to the commercial airplane strikes of the World Trade Centre, causing destruction in an area of about 0.25 kilometres in size. The Tunguska event, Kovacs’ research team notes, resulted in severe damage over an area 8,800 times larger than that in 9/11. If a similar event were to occur over Manhattan, the damages losses would be in the order of between US$2 trillion and US$4 trillion, Kovacs and Hallak estimate. “Such losses are well beyond anything the industry has ever faced, and it’s unclear how the industry could continue to function,” they wrote.

They acknowledge, though, the probability of such an object striking a major urban area is quite slim. Only 29% of the earth’s surface is landmass, of which a small fraction is urbanized. Still, Munich Re notes there have been roughly 100 documented meteorite crashes on Earth between 1900 and 2001, the biggest of which was the Tunguska event.

The Organisation for Economic Co- Operation and Development (OECD) estimates there is a one-in-2.5 chance of an asteroid with a diameter of 30 meters hitting the earth during the 21st century. Damage from such an event would entail “a devastating stratospheric explosion,” the OECD notes. “A shock wave … would topple trees, wooden structures and ignite fires within 10 km; and many deaths would be likely if it occurred in a populated area.”

An object 100 metres in diameter would have a one in 100 chance of striking the earth in the 21st century. The result would be a “low altitude of ground burst larger than the biggest-ever thermonuclear weapon, regionally devastating with a shallow crater roughly 1 km across,” the OECD estimates.

“Simply pointing to the presumable rarity of such events should no longer suffice in the light of recent experience,” Munich Re warns.

FLYING UNDER THE RISK RADAR

Despite all of its well-documented odds-making and potential doomsday scenarios (or perhaps because of them), the scientific community appears to have a tough road ahead if it is to sway the Canadian (re)insurance and risk management communities to take asteroid hit as anything less than a totally cataclysmic event. Many acknowledge coverage for an asteroid hit exists under most broad policies, but they would rather wait until the scientific evidence is more developed before they begin to consider possible exclusions or risk-mitigation strategies.

Kim Hunton, chair of the Risk and Insurance Management Society (RIMS)’s Canada Council, says that in her 20 years as a risk manager, she has not given the peril a thought. “The thinking is that it is just so far beyond our control,” she says. “Yes, we have insurance in place, and yes, some of our insurance policies would respond,” she continues, but the sheer magnitude of an impact would totally overwhelm any insurance concerns. “It is not even on our risk list, so what would we do to mitigate it? I don’t know. It’s sort of up there with the end of the world.”

Representatives of Canada’s major primary insurers all echoed Hunton’s view that NEOs are not on their respective risk maps. But some did comment on the state of existing coverage, and whether or not exclusions might need to be drafted in the future.

Bob Fitzgerald, executive vice president and chief underwriting officer of Aviva Canada, agrees that under most broad policies, coverage for an asteroid hit would exist under the rubric of a ‘fallen object.’ But every form is different, he cautions.

In a commercial policy, the vast majority of “traditionally fallen objects are not excluded on a broad-form wording unless there’s an excluded peril like war,” Fitzgerald says. “But on named-peril forms, the damage from a fallen object is only covered if the fallen object was dropped from a space craft or an air craft, so it would not include natural objects. But most buyers of commercial insurance are not buying named peril, they’re buying broad form.”

Personal lines policies present a similar situation, he continues. “On the homeowner’s side, the named perils form, the fire and extended coverage form does cover falling objects.”

Darryl Irwin, the national auto and property underwriting leader of RSA Canada, agrees there is generally no exclusion for NEOs on broad-form policies. As for the events that may follow an impact, including flooding from sea waves or fires, he says: “We always look to see what the actual cause of the accident was. Certainly if something were to land on your house and knock out a natural gas main and cause a fire, fire following the impact wouldn’t be something that would be excluded.”

Gilles Gratton, vice president of corporate communications at ING Canada, also noted this particular peril is covered under broad forms, with no specific exclusions. However, he adds, it is not covered under a named-peril form. He goes on to note that “in both commercial and personal lines, the ripple effects of flooding or earthquakes are not covered, but a resulting fire would be.” Base coverage, he explained, includes fire and excludes flooding and earthquake, but both perils can be underwritten and priced separately if requested.

William Lloyd, chairman and CEO of Willis Inspace (the space insurance division within Willis Group), has also not heard of any exclusions being created along these lines. “I think it’s a fairly rare instance [in which] something happens and the premiums charged do not contemplate any significant loss activity from these objects,” he says. “But if a catastrophic impact happened, I could see insurance changing very quickly after that — not unlike what happened with terrorism after 9/11.”

Rather than writing in exclusions, however, insurers may be more apt to restrict the binding power of brokers, Irwin suggests. But for this to occur, the science would have to be indisputable, he adds. Irwin points to the example of the 2003 forest fires in Kelowna, B. C., which caused an estimated Cdn$200 million in damage losses. “What we chose to do as an industry was restrict the binding authority of brokers [within] a certain distance of the perimeter of certain fires.” But if a policy already existed, adding in an exclusion for a forest fire would be out of the question, he says. “So if you could tell me that in five years, there was going to be an impact of an NEO in a certain town in Manitoba, I might restrict the brokers’ binding rights within that area if we could do that with 100% precision,” Irwin says.

To achieve this kind of predictive accuracy, the science surrounding asteroids will have to be stronger, Irwin notes. And even then, unless the insurance industry acts as a whole, an exclusion may never be developed, he says. “There was a recent example in which insurers looked to put exclusions in for Y2K [based on] the possibility of data going crazy because of systems not being programmed,” he recalls. The industry as a whole, at the recommendation of the Insurance Bureau of Canada — the IBC produces a high-level policy that most companies use as a basis for their own specific policy wordings — developed an exclusion to protect against the unknown, he says. “So, unless the industry as a whole was to do something like that at the advice of our advisory organization, we wouldn’t see it happening,” Irwin says. “[The risk] would have to be really crystal clear in order for it to happen, and I just don’t see a situation where that could be so specific.”

MAPPING THE FUTURE

Many suggest the science required to pinpoint asteroid hits is decades away. But Kovacs cites the work of NASA’s program Spaceguard, and wonders whether the insurance industry is aware of the research and findings developed as a result of this program. Spaceguard was set up in 1991 with the explicit intention of identifying and tracking potentially dangerous NEOs. More specifically, SpaceGuard’s mandate is to identify and track the orbit of 90% of the large space objects — i. e. objects with a diameter of more than one kilometer — by the end of 2008. By June 2007 Spaceguard had identified roughly 5,000 NEOs, of which 715were larger than 1 kilometer in diameter.

The 715large NEOs identified by Spaceguard account for roughly 65% of the estimated 1,100-1,200, one-kilometresized NEOs, the scientific journal Aerospace America reported. Although it’s highly unlikely that any of these super-sized NEOs are on a collision path with earth, Spaceguard managed to identify more than 4,000 smaller NEOs that pose a greater threat. Smaller objects vastly outnumber larger ones and because of this are more likely to collide with our planet, Aerospace America says.

“I think the insurance industry’s current coverage could continue as it is, if it is applied to objects that had not been previously observed,” Kovacs suggests. “In contrast, though, in the last 10 years… there are some objects that have been identified and named, and there’s published material saying a particular object could hit us on a particular date. There is now emerging research that says it might hit these locations.”

If an object is identified and scientists are able to predict when and where it will hit, the peril becomes an entirely different risk, Kovacs asserts. “And it’s not clear to me that that should be included in an insurance policy,” he says. “I think the insurance industry should

actively think about whether that’s a different kind of risk and what, if any coverage, it should offer.”

The industry may get its first chance to ponder a specific object with Apophis, an NEO stretching roughly 250 metres in diameter (about the size of a sports arena). It was identified in 2004, just a day or two after the Boxing Day Tsunami. In its March 2008 issue, the journal Science observes Apophis is projected to pass within 36,350 kilometres from earth in April 2029, zipping closer than geostationary satellites. “If it enters a keyhole — a corridor of space barely wider than the asteroid itself in which gravitational forces would give it a tug — it will end up on a trajectory that would assure a collision seven years later — Apr. 13, 2036, Easter Sunday,” Science predicts. Should Apophis hit earth, it has the potential of destroying an area the size of Costa Rica.

The odds of Apophis “threading the needle” are currently one in 45,000. “But dozens of factors influence asteroid orbits,” Science continues. “Researchers will get a better look during Apophis’s next appearance in our neighbourhood in 2012.”

Kovacs admits current scientific knowledge is not yet quite so precise as to pinpoint an exact location for a potential impact. “But at this point it’s precise enough to say there’s a probability that [Apophis] will hit somewhere on the earth,” he says. “Well, we have insurance for earthquakes. And for earthquakes, there’s always the probability that it will strike somewhere, [even if] the exact spot is a little unknown. And so at this point, is a detected asteroid impact still insurable? I don’t know. I think the insurance industry over the next few years will need to look at the growing detection knowledge and see if this is still an insurable risk for detected objects.”

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“It is not even on our risk list, so what would we do to mitigate it? I don’t know. It’s sort of up there with the end of the world.”

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“If you could tell me that in five years, there was going to be an impact of a NEO in a certain town in Manitoba, I might restrict the brokers’ binding rights within that area if we could do that with 100% precision.”

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“We have insurance for earthquakes, and for earthquakes, there’s always the probability that it will strike somewhere, even if the exact spot is a little unknown. And so at this point is a detected asteroid impact still insurable?”