Data center construction is overwhelming U.S. insurance markets as projects grow in size and value, according to a new report from Zurich North America.
Average insured project values have skyrocketed from $150 million to $3 billion in just the last five years, the report found. And the growth is expected to continue, with global data center investment projected to hit $7 trillion by 2030.
The ramp-up is straining insurance capacity as well as raising concerns around energy constraints, redundancy and equipment failure. Severe weather is also an issue, as many centers are being built in areas with higher weather risks, as is the shifting regulatory landscape.
"As AI adoption drives demand for data centers, the project values, power demand and execution complexity are all intensifying at once," said Kelly Kinzer, president and global head of construction and surety for Zurich, in a statement.
For some of the largest centers, which cost tens of billions of dollars, there isn't sufficient insurance capacity in the market to insure the projects at full value, but lenders typically want the reassurance of full coverage. Insuring to an estimated maximum loss instead of the full limit can be a workable solution, the report found.
Severe weather was the leading cause of loss in Zurich's U.S. data center builders risk portfolio over the last three years, particularly as data center construction has shifted away from the coasts. Currently, 64% of data center capacity is taking place in non-traditional hubs, such as Virginia, Texas, Tennessee, Wisconsin and Ohio.
Energy demand and labor shortages are additional risks. U.S. data center power demand is expected to triple by 2030, according to the report. Construction workers are in short supply, and using less experienced labor or extending work hours can increase risk even more.
"The market has a strong appetite to support the data center sector," said Heather Fox, president of U.S. national accounts at Zurich, in a statement. "But with construction, commissioning and operations overlapping more than ever, risk decisions must be coordinated across teams and time horizons. This is true for builders and owners, who want to avoid coverage gaps, as well as for insurers and reinsurers, who need to manage concentrations of risk and resilience across different portfolios."
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