Data centers consume large water volumes, making them vulnerable to drought, and many are located in regions prone to floods, fires, tornadoes or other disasters. A recent study by risk-analytics firm First Street found that up to 80 % of data-center projects worldwide are exposed to such hazards.
Investors and insurers are now asking developers more pointed questions about a building’s physical integrity and site selection, and they are demanding better forecasts of future climate exposure. Peiser said these inquiries are becoming increasingly detailed. Such scrutiny reflects growing awareness that physical risk can translate into large insurance losses.
The capital required to insure data centers is substantial, with projects often costing tens of billions of dollars. Insurers are beginning to amass sufficient capital to cover this volume of risk, yet they struggle to keep pace with the coverage needs of the biggest hyperscalers.
A tight power-equipment supply chain compounds the risk profile. If a gas turbine fails and replacement parts are unavailable for weeks or months, the resulting loss to insurers or their policyholders could be dramatically higher than current models anticipate, Peiser warned. Such delays could also disrupt data-center operations, amplifying financial exposure.
Insurers traditionally manage novel or unknown risks by raising premiums rather than withdrawing coverage. When energy infrastructure and oil tankers in the Middle East suddenly faced missile and drone threats this year, insurers quickly adjusted pricing, demonstrating a willingness to adapt. The same pattern is expected for data-center coverage, though at higher cost.
Despite the likelihood that data centers will remain insurable, the price of protection is set to rise sharply. Critical unanswered questions include how to accurately model combined climate and supply-chain risks and how insurers will allocate capital across the rapidly expanding hyperscale market. Policymakers may also need to consider regulatory frameworks to ensure resilience.