As data centers have grown from modest buildings to complex, multi-billion-dollar campuses, the insurance industry has been focusing on risky engineering, an attractive proposition that has also fostered competitive rating structures, brokerage Lockton reported.
In its recent data center market update, Lockton noted that despite asset sizes reaching unprecedented heights, a surge in new capacity and an increasing focus on risky engineering are creating a “buyer-friendly” insurance environment.
The insurance broker highlighted that the growth of these high-density clusters presents challenges and “gray areas” where traditional insurance coverage may be inadequate.
Because traditional property policies require physical damage to trigger, lost revenue from service level agreement (SLA) breaches remains a significant gap. This has stimulated interest in parametric solutions that pay based on defined performance failures.
The growing value of customer-owned GPU and AI hardware in data centers makes unclear liability for loss/damage a major issue.
A lack of clear risk allocation can lead to complex tenancy disputes, supply chain disruptions and wider community consequences following an incident. Lockton said clear risk ownership is therefore crucial.
As demand for electricity increases, insurance companies are taking a closer look at how facilities can ensure a resilient, scalable energy supply. Doubly fed grid connections, alternative fuels and on-site generation are becoming central to underwriting discussions.
A clear divide is forming between older hosting sites and newer hyperscale developments. While existing facilities face a greater risk of attrition, rapid technological advances pose a risk of obsolescence for new facilities.
Losses in the industry remain primarily consumptive due to equipment failures, cooling issues and electrical failures. These incidents, although individually small, cumulatively shaped the insurer’s view of operational discipline.
Data center business interruption (BI) costs often exceed physical damage charges, even for minor incidents.
This financial imbalance requires a rigorous examination of business continuity measures, including redundancy, prescribed recovery times, and robust incident response plans.
To support growth in artificial intelligence and economic productivity, new regulations will be introduced to designate UK data center projects as Nationally Significant Infrastructure Projects (NSIPs).
This means that, with approval, developers will be able to bypass certain local planning hurdles. The government is currently working to reduce the approval time for these projects from an average of 18 months to just 12 months, providing the certainty needed for large-scale capital investment.
According to Lockton’s report, another obstacle to UK data center development is an unforeseen legal complexity: light rights. It’s an emerging issue as developers focus on “grey belt” or brownfield industrial sites in urban areas.
Lockton explained that because data centers are huge, windowless buildings, they can infringe on the natural light elements of neighboring residential buildings.
Such disputes could result in an injunction stopping construction entirely. To combat this, the industry is increasingly turning to customized insurance products to cover potential losses and keep projects on track, the broker noted.
Looking ahead to the remainder of 2026, Lockton predicts the industry will focus on sustainability and future-proofing.
Sustainability will remain a central theme, with AI-powered optimization offering new ways to reduce energy consumption and extend the life of assets designed to operate efficiently for decades.
At the same time, the pace of innovation in artificial intelligence and computing hardware will require operators to future-proof facilities while maintaining insurability.
