A new report from AM Best suggests that the continued surge in data center projects provides a “huge opportunity” for the U.S. property and casualty (P&C) insurance industry to develop innovative new property and liability coverage amid growing demand.
Data center developers “firmly” believe that infrastructure must be developed if the United States is to remain competitive among global AI powers, the report said.
AM Best explains: “As AI becomes a more important part of society as a whole, it will be important to address the headwinds associated with the availability and affordability of data center energy.”
David Blades, associate director of industry research and analysis at AM Best, commented: “As data center development and construction expands, the insurance coverage required continues to evolve as it currently exceeds what the traditional property/casualty industry has previously experienced.”
The rating agency’s report notes that “hyperscale” data centers currently attract the most attention and scrutiny due to their size, rapid expansion and significant impact on local communities.
AM Best said much of the issue centered around power consumption, noting that it was estimated that a modern AI data center would use the same amount of electricity as about 100,000 homes.
As the number and size of AI data centers rapidly increases, property and casualty insurers are reportedly faced with the daunting challenge of developing solutions to support these highly complex, high-value projects.
A recent S&P Global report on hyperscale data center campuses highlighted a similar dynamic, which found that total insured value during the construction phase reached $20 billion to $50 billion as the market adapts to a step change in asset size, indicating a growing but also increasingly selective opportunity for reinsurers.
Returning to AM Best’s report, the rating agency highlighted that risks related to energy and water consumption, mineral demand, grid investment, staffing and labor costs also increasingly come into play.
It also sets out how corresponding risk factors associated with coverage are achieved, including loss of revenue due to business interruption due to partial or complete shutdown of a data center for covered loss reasons.
The report further outlines physical damage to data centers during construction (i.e., builder’s risk coverage), as well as potential extensions such as “startup delay” or “early profit loss” coverage, as well as protection for consequential financial losses caused by construction delays.
Other risks include first-party financial losses resulting from damage to the physical structure and its internal components, including computer servers, equipment and other contents, resulting from a covered cause of loss.
Finally, the report notes that insurers may face risks on the asset side of their balance sheets given the large amounts of capital required to finance data centers, including through private credit investments or other financing arrangements.
