Best’s Special Report: Evolving Data Center Landscape Requires Insurer Innovation

OLDWICK, N.J.--(BUSINESS WIRE)--The growing proliferation of data center projects offers considerable opportunity for the U.S. property/casualty insurance industry to develop innovative new property and liability coverages amid increasing demand, according to a new AM Best report.

The Best’s Special Report, titled “Evolving Data Center Landscape Requires Insurer Innovation,” notes that business interruption coverage may be the most consequential for data center owners, given the potentially massive scale of artificial intelligence (AI) operations, and the resulting elevated probability of highly complex power outages.

Larger data centers, sometimes referred to as “hyperscale” data centers, are presently drawing the greatest attention and scrutiny because of their size, rapid growth and substantial impact on local communities. Much of the focus is on power demands. By one estimate, a modern AI data center can use as much power as approximately 100,000 homes. Amid the rapid growth in number and size of AI data centers, property/casualty insurers are faced with the critical of providing solutions to support these highly complex, high-valued projects. “As data center development and construction spreads, the required insurance coverage is evolving, as it is currently beyond what the traditional property/casualty industry has previously experienced,” said David Blades, associate director, Industry Research and Analytics, AM Best.

According to the report, data center developers are adamant that the infrastructure must grow if the United States is to remain competitive in the global AI power. With AI becoming a more critical component for society in general, how well the headwinds associated with the availability and affordability of energy to power data centers are addressed will be of major importance.

Risks related to energy and water consumption, mineral requirements, investment in the electric grid, staffing and labor costs are chief among the considerations that are also coming into play. The Best’s Special Report notes how corresponding risk factors may materialize with respect to coverage:

• Business interruption leading to loss of revenue due to a partial or total shutdown of the data center from a covered cause of loss.
• Physical damage to the data center during its construction (i.e., builders risk coverage). Some coverage extensions made available as part of this policy could include “Delay in Start-Up” coverage or “Advance Loss of Profits” coverage, in addition to coverage for indirect financial losses caused by construction delays.
• First-party financial loss stemming from a direct, covered cause of loss that damages the physical structure, and its interior components (e.g., computer servers and other equipment) and other contents.
• Given the significant capital required to finance data centers, insurers may have exposure on the asset side of their balance sheets through private credit investments or other financing arrangements.

To access the full copy of this Best’s Special Report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=365686.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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