Smart meters are a "time bomb" for utilities, warns insurance expert
Jul 23, 2014
Quick Take: As an industry, we've done a lot of thinking about the smart meter cost/benefit equation. But I wonder if we've adequately considered what would happen if smart meters made insurance rates go up? Two recent articles in the Insurance Journal suggest that the insurance industry is waking up to this new concern. – Jesse Berst
Cyber attacks on infrastructure have become a major worry for utilities, warns a recent article in the Insurance Journal. Traditionally, energy utilities have kept the grid safe by keeping it separate from the open Internet. But that is rapidly changing as smart meters connect customers to their utilities through the web.
Utilities claim customers have little to fear since those meters will use the same security measures as online banking. But “the risk is being underestimated outside of the industry,” said Eberhard Oehler, managing director of German utility Stadtwerke Ettlingen. A recent simulated attack came close to shutting down power to Ettlingen's 40,000 residents. The experiment revealed that "sensitive, critical infrastructure is not sufficiently protected."
For instance, a Puerto Rican utility estimates it lost $400 million in one year after criminals hacked into smart meters to under-report electricity usage. A report from the University of Cambridge confirmed that smart meters raised “several serious security issues” such as:
· Manipulated meter readings
· Misuse of private customer data
· Power outages from a cyber attack
Utilities are just not ready
"Energy Firms Unprotected for Major Cyber Events" warns another article from the same publication. It quotes reinsurance broker Willis, likening the threat to a “time bomb” that could cost the industry billions of dollars.
“A major energy catastrophe – on the same scale as … Exxon Valdez or Deepwater Horizon – could be caused by a cyber attack," the insurance broker said. But that's not the worst part. "Cover for such a loss is generally not currently provided by the energy insurance market." Most insurance policies cover minor things such as data losses or IT downtime, but not major events like explosions triggered by hackers, Willis said.
A clause in most utility insurance policies explicitly excludes loss or damage from software, viruses or other malicious computer code.
Jesse Berst is the founder and Chief Analyst of SGN and Chairman of the Smart Cities Council, an industry coalition.