India’s rapid data-centre expansion is exposing limitations in traditional insurance approaches, particularly around non-damage outages, cyber concentration, power resilience, construction risks and water stress, according to Howden’s Insuring the Data Centre Supercycle report.
More than 90% of India’s data centres have redundant uninterruptible power supply, generator and cooling systems. Yet an outage can still occur because of a system failure that causes no physical damage. Such an event may not trigger conventional property insurance coverage, creating a potentially significant protection gap.
The insurance market is responding through solutions such as parametric insurance, particularly for retail and wholesale data-centre operators. These providers account for approximately 86% of India’s data centres and typically have uptime commitments to multiple customers.
Cyber Risk Is Becoming More Concentrated
Cyber risk is another growing concern as data centres become increasingly interconnected.
A single cyber compromise could potentially affect systems and workloads belonging to hundreds of thousands of tenant organisations. Greater interconnection can also increase the possibility of lateral movement between connected systems.
The report therefore suggests that cyber exposures should not be assessed independently from property, power and operational risks. For insurers, understanding how these exposures interact is becoming increasingly important.
Power Becomes a Critical Underwriting Factor
India’s data-centre power consumption has increased dramatically. Power consumed by data centres grew 68-fold between 2016 and 2025, representing a compound annual growth rate of around 60%, based on S&P data cited in the report.
Demand is forecast to reach 57 terawatt-hours by 2030, while energy accounts for approximately 65% of data-centre operating costs. Maharashtra, Telangana and Karnataka together account for around 70% of India’s data-centre capacity.
These figures make grid connectivity, substation capacity and power redundancy important considerations for both operators and insurers.
Some hyperscale campuses are increasingly using behind-the-meter power generation to improve reliability. While this can strengthen energy resilience, it also changes the underwriting profile and creates a need for more location-specific risk assessment.
Construction Creates New Business Risks
Construction activity at operating data centres creates another complex exposure.
India added approximately 7 million square feet of data-centre space in 2025, while construction volumes have grown at a 37% compound annual growth rate since 2016.
The average size of a new facility increased from 59,000 square feet in 2016 to 276,000 square feet in 2025. At the same time, planned expansion between 2026 and 2030 is equivalent to 78% of the existing data-centre footprint.
Construction alongside live, high-value operations can increase the possibility of physical damage and business interruption, particularly during testing and commissioning.
This creates a strong case for considering construction and operational exposures within a single integrated insurance programme, rather than treating them as entirely separate risks.
Water Stress Adds Another Layer
Water availability is another emerging concern. Many data centres are located in urban areas where water resources are already under pressure.
According to the report, cooling a 1 megawatt data-centre facility can require approximately 25.5 million litres of water annually.
Water availability therefore needs to be considered during site selection and risk assessment, particularly as data-centre capacity continues to expand.
The report also highlights water use, renewable-energy sourcing, energy efficiency, power usage effectiveness and carbon footprint as factors that should increasingly form part of planning and site-selection decisions.
Traditional Insurance Needs a Broader View
The central issue is that data-centre risks are highly interconnected. Power, cyber, construction, operational, property and water risks can interact, while conventional insurance frameworks may assess these exposures separately.
For insurers, this creates a need for more sophisticated site-level risk assessment, dependency analysis, scenario modelling and integrated insurance programmes.
The development also demonstrates why non-damage business interruption is becoming an important consideration. A facility can remain physically intact while a technology, power or operational failure prevents it from meeting customer uptime commitments.
As India’s data-centre sector continues to expand, insurance will need to address not only physical asset damage but also the availability and continuity of critical digital infrastructure.
Want to deepen your expertise beyond today’s news?
Explore practical certification courses designed for banking, risk, insurance, compliance, ESG, AI, and emerging technologies professionals.
Learn from industry experts and earn certifications from RMAI and BFSI Sector Skill Council of India.
#Insurancenews
