In today’s data-driven economy, data centers are the critical infrastructure powering everything from cloud computing to financial transactions. As data centers continue to grow in size, number, and strategic importance, so too does the complexity of insuring them. It’s no longer just a matter of covering physical assets — it’s about understanding and mitigating a wide spectrum of risks that can threaten operational continuity and financial stability.
The sheer size of hyperscale data centers amplifies every aspect of risk. From catastrophic natural events to equipment failure and power disruptions, the potential for large-scale loss is significantly higher than it’s ever been. This scale not only increases the value at risk but also complicates underwriting, increases premium spend, and demands more rigorous risk mitigation strategies.
How do the unique characteristics of hyperscale data centers — from site selection and construction to system redundancy and power infrastructure — affect their insurability? Let’s examine how insurers evaluate these risks and what operators can do to manage costs while maintaining resilience at scale.
I. Site selection: the impacts of catastrophic risk
Location is (almost) everything. When selecting a site for a data center, it’s critical to evaluate the area's exposure to catastrophic events such as floods, earthquakes, hurricanes, or wildfires. These risks directly influence insurance costs and long-term operational viability.
Operators should consider:
Complete catastrophe risk assessments. Is the site located in a floodplain, seismic zone, or area at risk for hurricanes and tropical storms, convective storms (tornados), or hail?
Pro forma adjustments. Are projected rents sufficient to offset higher insurance premiums due to the elevated risk of developing and operating a data center at a specific site?
Model future costs. Are long-term risk-related costs incorporated into your financial models? Considerations must be made to model and account for potential interruptions and the resulting downtime.
Property and catastrophe hazard insurance premiums are heavily influenced by geographic risk. A thorough risk assessment can help optimize coverage and cost. Consider including these impacts in your site selection criteria.
II. Infrastructure: Building for Resilience
From an insurance standpoint, noncombustible construction is the gold standard. Where full noncombustibility isn’t feasible, materials should be selected based on their resistance to local hazards, such as fire, wind, or hail.
Operators should consider:
Combustible materials such as nonrated insulated metal panels, aluminum composite material panels, and combustible roofing increase risk and could even make a hyperscale facility uninsurable and/or make insurance cost-prohibitive.
Improper installation or lack of protection (for example, sprinklers) further exacerbates exposure.
Loss Expectancy. Insurers assess the potential severity of losses as part of the underwriting process. Lower loss expectancies and mitigation of risk factors can lead to more favorable outcomes.
Roof structures should be designed to meet or exceed local requirements for wind, snow, and hail loads to ensure durability against extreme weather conditions.
When it comes to design and material, the devil can be in the details. Consider having a property engineer — one who is experienced in data center development and operation, with a focus on loss control — review your plans and material selection.
Your insurer or broker may have the resources and interest to assist with the review. Spending additional resources during the design phase to address risk management can pay significant dividends over the life of the asset, enabling you to better control losses, access insurance capacity, and optimize your annual premium spend.
III. Key systems: equipment resilience and redundancy
Equipment breakdown insurance covers losses due to mechanical or electrical failure. The time element— how long systems are down — can be a major cost driver.
Operators should consider:
Implementing redundant systems (such as transformers, cooling units, or generators).
Avoiding single points of failure. Underwriters prioritize system resilience.
Direct-to-chip cooling implications, which introduce risks related to fluid leaks. Proper design, installation, and maintenance are essential.
Risks unique to heavy equipment, including pollution, noise pollution, and vermin.
Financial losses typically increase with the duration of system outages. To ensure equipment resilience and minimize downtime-related costs, it's important to implement robust risk mitigation strategies to safeguard against both expected and unforeseen disruptions, ultimately supporting long-term performance and insurability.
IV. Power supply: managing operational continuity
Power reliability is a top concern for insurers due to the potential for business income loss during outages.
Operators should consider:
Onsite power: While this offers independence from the grid, it introduces operational liability. If onsite systems fail, the responsibility lies with the operator.
Third-party operators: Outsourcing power plant operations can transfer liability and reduce risk.
Occupancy classification: Power generation facilities may be underwritten separately from data centers. It is important to build a corporate structure that allows flexibility to maximize convergence and reduce costs.
Contractual liability: Guarantees of 100% uptime can expose operators to significant financial and legal risk. Insurers will scrutinize these commitments closely.
Ensuring reliable power supply is critical for maintaining operational continuity and minimizing business income loss, especially in high-stakes environments like data centers. While onsite power generation offers autonomy, it also introduces direct operational liabilities. A balanced, well-structured approach to power management is essential for sustaining resilience and insurability.
V. Crafting the narrative: communicating with underwriters
Insurance is not just about risk — it's about how you tell your risk story. Be prepared going into the underwriting process.
Operators should consider:
Your plan. Are you clearly articulating your risk mitigation strategies?
Your capability. Can you and your advisors effectively communicate your resilience measures to underwriters?
Your narrative. Are you building a compelling narrative that justifies favorable insurance terms?
Insurers have limited capacity — they provide the best terms and most capacity to organizations that have a plan and demonstrated capability. A well-documented, transparent, and proactive approach to risk management can significantly improve your insurance outcomes. Work closely with your broker to develop your approach to risk mitigation and make sure underwriters are receiving this narrative.
VI. Strength & liability
As the shift to hyperscale data centers continues, size becomes both a strength and a liability. The massive scale of these facilities intensifies every risk factor, making insurance a more complex, costly, and strategic consideration.
Insurers evaluate not just the presence of risk, but how well it is understood, mitigated, and communicated. For hyperscale operators, this means that proactive risk management is no longer optional — it’s essential.
