Data centres expose insurers to fire climate and cyber risks

Investment could exceed $1t annually by 2027.

The artificial intelligence (AI)-driven expansion of data centres is creating new construction, operational, climate and insurance risks, with China and the US expected to account for most of the market.

Annual investment in data centres is expected to double from about $500b in 2024 to more than $1t by 2027, according to a report by Allianz Commercial.

The report, The Data Centre Construction Boom: Risks and Claims Trends, said the investment is extending beyond data centre buildings to electricity generation, grid infrastructure, cooling systems, networking and semiconductor manufacturing.

The US and China are expected to account for about 62% of new global data centre capacity through 2030. 

Other markets are also expanding, with Spain, Finland and Denmark expected to see faster growth in Europe because of power availability and permitting conditions.

In Asia-Pacific, excluding China, installed data centre capacity is projected to rise from about 9GW to more than 28GW by 2030. Malaysia is expected to record more than tenfold growth.

Thomas Lillelund, CEO of Allianz Commercial, said the expansion of artificial intelligence is changing data centres from traditional real estate assets into critical infrastructure.

“Success will increasingly depend on resilience,” he said, citing access to power, reliable supply chains, construction controls, climate-aware site selection and insurance coverage.

Climate risk is also becoming a major consideration for the sector. 

Allianz said about 79% of global data centre capacity is located in areas exposed to elevated natural catastrophe risks, whilst 54% is exposed to chronic heat and drought stress.

Some rapidly expanding data centre markets, including Northern Virginia in the US, Johor in Malaysia and Marseille in France, also face significant climate risks.

Acute risks from flooding, wildfires and strong winds affect 86% of data centre capacity in the Americas. In Asia Pacific, 89% of capacity is exposed to chronic heat and drought stress.

The growing risks are also driving demand for insurance. The global data centre insurance market is projected to more than double from about $11b currently to more than $24b by 2030.

Construction costs for a single AI data centre campus can exceed $20b, whilst insured values increase further once high-performance computing equipment is installed.

Allianz expects demand to expand beyond traditional property insurance to cover construction, engineering, business interruption, cyber and liability risks, as well as risks linked to energy resilience and operational continuity.

The insurer's analysis of data centre claims found that fire is the main cause of severe losses, accounting for more than half of about €700m ($800m) in losses analysed.

Natural catastrophes ranked second, followed by willful acts, including crime and cyber incidents, and power failures.

Water damage was the most frequent cause of claims, followed by willful acts, fire and equipment breakdown. Business interruption was the main driver of claims severity by insurance line, reflecting the financial impact of operational downtime.

The growing size and complexity of hyperscale and colocation data centres are also increasing the potential impact of individual incidents. A single event can affect property, construction, business interruption, liability, cyber and financial insurance lines.

Allianz said claims involving external cooling systems, hot works-related fires and delays in starting operations following power disturbances have resulted in losses of between $50m and $100m.

Christian Kolbe, Global Head of Construction Claims at Allianz Commercial, said insurers need to consider not only the value of a data centre but also the concentration of critical systems and dependencies surrounding it.

Power, cooling, batteries, fibre routes, testing and commissioning and business continuity planning all form part of the overall risk, he said.

Insurance arrangements can also become complicated because different policies apply during construction and operation. 

Construction projects typically involve owners, developers, contractors and subcontractors, whilst operational facilities may have an owner-operator and several tenants.

Charlotte Field, Regional Head of Short-tail Claims, Asia, at Allianz Commercial, said clear handovers between construction all-risk and operational policies are needed to avoid disputes over which policy applies when an incident occurs.

She said practical completion must be clearly documented so that the extent of insurance cover is clear when responsibility for the facility changes.