The rapid expansion of large-scale data centres is creating new challenges for insurers as individual projects reach multibillion-dollar valuations and increasingly require reinsurance, global insurance capacity and alternative risk capital to secure adequate protection.
Data-centre projects valued at around $5 billion to $10 billion are becoming increasingly common, according to James Nelson, US leader of Lockton’s Data Centers & Digital Infrastructure Practice. At the same time, the global insurance market may have only around $15 billion to $20 billion of available capacity for such risks in various forms, making the structure and geographical spread of insurance placements increasingly important.
The scale of investment means that the largest developments may no longer be capable of being insured efficiently through conventional domestic markets alone. Major projects could increasingly require participation from reinsurers, insurance-linked securities investors, alternative risk providers and insurers operating across multiple international markets.
Nelson noted that extremely large $50 billion hyperscaler campuses remain exceptional rather than commonplace. However, projects exceeding $20 billion could require developers and brokers to access insurance capacity well beyond traditional centres such as the United States, the United Kingdom and Bermuda.
Risk Concentration Becomes a Major Challenge
One of the most significant insurance issues arising from large data-centre developments is aggregation risk.
A single data-centre campus can contain buildings, servers, cooling equipment, electrical infrastructure and extremely expensive computing hardware owned or insured by different parties. An insurer, for example, might provide property cover for the building on behalf of one client while separately insuring high-value graphics processing units (GPUs) belonging to another organisation at the same location.
This creates the possibility that an insurer has multiple exposures concentrated within a single site without the full accumulation being immediately visible. A major fire, natural catastrophe, power event or other loss affecting the site could therefore trigger several policies simultaneously.
The market has also yet to experience a catastrophic data-centre loss of sufficient scale to fully test how policy wording, contractual liabilities and claims responsibilities would operate across the various parties involved, including owners, tenants, contractors and lenders.
The underlying hazards themselves may not necessarily be new. The challenge is that the financial values at risk are considerably larger, magnifying the consequences when traditional property and construction exposures occur.
Phased Construction Complicates Insurance
Another challenge comes from the way modern data-centre campuses are built.
Large facilities are often developed in phases. One section may already be operational and processing data while neighbouring halls remain under construction. This creates a potentially complex transition between builders’ risk insurance and operational property insurance.
Insurers therefore need to understand exactly when a completed portion of a project moves from construction cover into operational insurance and how exposures are managed while construction continues elsewhere on the same site.
According to Nelson, leading insurers are becoming increasingly comfortable managing these transitions, but the issue needs to be addressed proactively rather than treated as a standard insurance placement.
Power Availability Adds Another Risk Dimension
Power infrastructure has become another critical consideration for data-centre developers and insurers.
Data centres require enormous and highly reliable electricity supplies. Developers therefore need to assess grid-connection delays, power availability and behind-the-meter generation arrangements when planning new facilities.
Regulatory intervention is also becoming increasingly relevant. Restrictions on new data-centre developments or power consumption in major markets could have consequences extending across the ecosystem, affecting developers, equipment vendors, contractors, suppliers and lenders.
Such developments mean insurers must consider risks beyond physical damage. Delays in power connections, changing regulations and contractual obligations can potentially influence construction schedules, project economics and business interruption exposures.
Contract Review Becoming Critical
The growing complexity of data centres is also increasing the importance of early-stage risk planning and contractual analysis.
Before insurance programmes are structured, developers and investors need to understand contractual responsibilities, identify counterparties and establish whether available insurance limits adequately reflect the organisation’s actual exposure.
Nelson stressed that insurance arrangements cannot simply be treated as standardised products. The appropriate structure can depend on ownership arrangements, financing, construction phases, operating models and future expansion plans.
Insurance requirements may also change during a policy period where investors rapidly expand their data-centre portfolios or acquire additional assets.
Early engagement between developers, brokers and insurers can therefore become important in presenting the risk appropriately to the market and assembling sufficient capacity.
Lockton Creates Global Data Centre Practice
Against this backdrop, Lockton has launched a global Data Centers & Digital Infrastructure Practice, bringing together specialists in insurance markets, engineering, analytics and risk strategy.
The practice is particularly focused on investors backed by private equity, infrastructure funds and real estate capital, including property developers entering the data-centre sector from other asset classes.
Its objective is to provide a coordinated approach to risk throughout the entire lifecycle of a facility—from site selection and design through construction, operations and portfolio expansion.
The development illustrates how data centres are emerging as a significant specialty insurance class. As investment values rise and computing infrastructure becomes increasingly concentrated in individual campuses, traditional insurance programmes may require much broader participation from international insurers and reinsurers.
For the insurance industry, the data-centre boom therefore presents both a major growth opportunity and a substantial accumulation challenge. Insurers will increasingly need sophisticated modelling of property concentration, construction exposures, equipment values, power dependency, contractual liabilities and business interruption, while brokers may need to assemble capacity across multiple global markets to protect the largest projects.
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