The rapid expansion of data centers is forcing the insurance market to confront the scale and concentration of a class of assets that can require billions of dollars in coverage at a single location.
Projects valued between $5 billion and $10 billion are increasingly common, according to James Nelson (picture), US leader of Lockton’s Data Centers & Digital Infrastructure Practice. At the same time, the global market may offer only about $15 billion to $20 billion of capacity “in some way, shape, or form,” making the structure and location of each placement critical.
The largest developments may increasingly need support from reinsurers, insurance-linked securities investors and other alternative risk providers, as well as carriers operating across several regions.
“Fortunately, most projects we're seeing are well under that,” Nelson told Insurance Business. “I'd say those $50 billion hyperscaler campuses are the exception, not the rule just yet. Maybe that will change.
“You can't just look at the US, the UK, and Bermuda anymore. For a big $20 billion-plus project, you need to access the global capacity.”
At the same time, insurers also need a clear view of who owns and insures each part of a data center. One carrier could cover the building for one client and the GPUs inside it for another, leaving it with overlapping exposure at the same site without the concentration being immediately apparent.
The market has not yet experienced a catastrophic data center loss that fully tests policy language, contractual liability and claims allocation among owners, tenants, contractors and lenders, Nelson noted.
“The conventional risks are addressed adequately. They're just a lot bigger,” he said. “I think what the market has not seen yet, which will tell a lot, will be that big material claim.”
Phased developments create a further complication because one section of a campus may already be operating while adjacent halls remain under construction. That can blur the boundary between builders’ risk and operational property coverage. Nelson said market-leading carriers are becoming more comfortable addressing the transition.
“It's not a gap, but it's something we need to address proactively,” he said.
Access to power remains a persistent concern as developers weigh grid-connection delays and behind-the-meter generation. Regulatory intervention has also gained attention following headlines around New York’s moratorium, Nelson said. Similar restrictions in major markets such as Texas or Virginia could affect developers, vendors, contractors, suppliers and lenders.
Early planning can include reviewing contracts, identifying counterparties and securing limits suited to the business rather than defaulting to the minimum available. Those decisions may need to change within a policy term if an investor’s asset base or growth plans shift quickly.
“The earlier we can have those conversations, the more proactive we can be in the market, telling your story as the client and putting together the best solution for you,” Nelson said. “This can't be a one-size-fits-all, commoditized product.”
Against this growing complexity, Lockton has launched a global Data Centers & Digital Infrastructure Practice, combining specialists in risk strategy, analytics, engineering and insurance markets. The practice is focused in part on private equity-, infrastructure- and real estate-backed investors, including developers moving into data centers from other property sectors.
Nelson said the structure formalizes work already underway and is intended to give clients a coordinated view of risk across a facility’s life cycle, from site selection and design through construction, operations and portfolio expansion.
“Data centers aren't new to Lockton. We've had a lot of smart, hardworking, creative people working in this space for a long time,” said Nelson. “But it's been a good opportunity to really marshal the resources, take the best of what Lockton can offer and the best of how we can approach our clients, and put it together in a streamlined, cohesive approach for the clients and prospects, but also the insurance carriers on the other side.”
