AI data centers' explosive growth creates insurance risks
The rapid expansion of AI-powered data centers is forcing insurers to confront unfamiliar risks tied to construction, technology obsolescence, and natural hazards. Companies building these facilities face challenges that existing insurance products may not fully address.
Data centers can become technologically outdated before construction finishes, according to Alastair Swift, head of global specialties at Willis, an insurance brokerage that launched a digital infrastructure group in February. As computing requirements shift, builders may need to swap equipment mid-project to avoid installing inefficient systems.
Construction financing adds another layer of complexity. Banks backing data-center projects typically require credit insurance to cover their risk, and they distribute this coverage across multiple insurers because the sums are large.
Supply chain disruptions pose a third threat. Recent geopolitical events have blocked materials from reaching construction sites-a scenario that shipping insurance typically doesn't cover. Tom McFarland, director of product management at Novidea, an insurance platform management company, said business interruption policies might apply, though larger corporations like Google or Amazon can usually absorb construction delays that smaller operators cannot.
Water and fire risks
Data centers require substantial cooling water to manage heat from computing hardware, which often means locating facilities near water sources. This proximity increases flood risk. Swift described a client who repositioned its facility slightly within an approved site and moved entirely out of a flood plain as a result.
The heat generated by data centers also raises fire risk. Some facilities now install on-site power generation-diesel generators, solar panels, wind farms, or even small nuclear reactors-to reduce dependence on the local grid. McFarland said this trend is new to the industry and introduces additional risks that large insurers are now hiring specialists to understand.
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