Marsh executives confirmed that data centers are an insurable asset class, however, their sheer size and scope poses challenges, noting that these multi-billion dollar facilities require careful risk engineering and close collaboration between project sponsors and re/insurers.
Speaking at a recent Digital Infrastructure News webinar hosted by Marsh, Mike Matthews, head of global digital infrastructure at Marsh, said the unprecedented size and scale of today’s data centers makes insuring these assets challenging.
“What we’re seeing now is just tremendous scale and scope,” he said. “You have a $4 billion data center with $10 billion worth of equipment in a single site facility. So size and scale are the challenges. Taking that risk with multiple partners and operators is clearly going to be the trend.”
Matthews noted that these projects require extensive risk engineering upfront, including disaster modeling and site design.
“We’re talking about the acquisition phase – pre-development – so acquiring capital, land, power, tenants, as an investor you really have to evaluate all of that before you make an investment. Be prepared up front, think about the right EPC, engineers, architects, design and proven technology, all of that goes into the risk engineering process pre-insurance. And then all the capital in the reinsurance market where we’re going to be creative over the next few years, I think that’s going to be integral to the successful insurance model for these projects,” Matthews said.
Jeremy Goodman, chief client and growth officer at Marsh Reinsurance brokerage Guy Carpenter, reiterated that data center assets are insurable, but their coverage depends on whether insurance companies and reinsurers understand the risk, can quantify the risk, and can measure the risk exposure.
“The terms, conditions, coverage and available capacity will reflect the insurer’s and reinsurer’s knowledge and understanding of that particular asset,” Goodman explains.
He added, “Those practices that involve insurers and reinsurers and help them understand how the project will be approached, how it will be built, which contractors will be used, etc., will increase the comfort level. Overall, in order to meet the many needs and the rapid pace of development, communication and engagement can be improved between the various different sponsors and principals and insurance companies and reinsurers, which will increase knowledge, understanding and comfort level. As a result, I think to some extent, capital on the sidelines in the reinsurance market will be more inclined to step up and deploy.”
Goodman stressed that this will require “much more thought than in the past”, moving from a site-by-site approach to an interconnected ecosystem that enables capital to be deployed at scale efficiently and sustainably.
During the webinar, Goodman also said digital infrastructure represents one of the most significant capital deployment opportunities in the reinsurance market in a generation.
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