Data Centres at the Core: Navigating Insurance Challenges and Mega-Valuation

Data centres are rapidly becoming one of the most complex and capital-intensive asset classes in the global economy, blending property, energy and technology risks at unprecedented scale. As valuations surge into the tens of billions and power demands rival small cities, insurers face mounting challenges around capacity, underwriting and evolving risk exposure.

Growing Complexity of Data Centre Insurance

Data centres have become a key part of the digital economy, and their rapid expansion is creating unique challenges for insurers. Nearly US$3 trillion will be spent globally on data centres by 2029, according to Morgan Stanley, with McKinsey estimating capital outlays of US$6.7 trillion by 2030.[1]

The US in particular is accelerating the construction of large-scale data-centre campuses, with the supply in primary data centre markets increasing by 34% year-over-year to 6,922.6 megawatts (MW) in 2024, far surpassing the 26% increase in 2023. While many countries are investing heavily in the market, the US is projected to have around 40% of worldwide data-centre investment by 2030.

With demand soaring globally, the insurance market is responding to the challenges they raise – including capacity constraints, complex risk profiles, and evolving technical requirements.

Coverage Nuances

In many ways the construction risk profile of a data centre is very similar to that of an office/ warehouse construction project, since the highest value components (the computer hardware and Graphics Processing Units (“GPUs”) specifically) tend not to be covered. What makes data centres different from these established projects is the power consumption required, and in particular the need for either on-site power backup or on-site generation capacity.

Delays in securing an appropriate grid capacity, together with challenges of securing a suitable, and reliable, power supply are pushing more data centre developers towards on-site generation. The power demands of the large data centres is akin to the electricity demands of 30,000 to 60,000 homes, making the on-site power generation similar to that of a power station or commercial wind/ solar farm. Large data centres also consume up to 5 million gallons per day, equivalent to the water use of a town populated by 10,000 to 50,000 people. In the US, it is estimated that data centres could take up as much as 12 percent of total power consumption by 2028, a higher demand than all manufacturing of steel, aluminium, and other high-intensity manufactured goods combined.

As such, the policies sit at the boundaries of property CAR and power CAR, and the same for operational, which can bring some challenges.

Valuation and Capacity Constraints

The Project values are staggering. Developers are seeking loss limits of US$10 billion for projects valued at c.US$30 billion—excluding GPUs. With GPUs included, exposure could reach $60 billion. Construction market capacity typically caps at US$4–4.5 billion, forcing creative placement strategies. Operational risks often fall under property markets, but significant power components may push coverage into the power/energy sector.

Key Risks and Loss Trends

The enormous physical footprint of many new data centres means they are often sited in remote locations, particularly throughout the US. “Data Centre Alley,” a rural area in Northern Virginia, already represents 13% of the global data centre capacity.  These data centres can be exposed to natural catastrophe risk, heightened storm frequency and severe weather events as climate change intensifies weather risks. Natural catastrophe exposure is therefore critical, particularly for sites in tornado-prone regions.

Fire is still one of the main causes of data centre losses, so fire compartmentalisation is essential to mitigate spread as well as smooth running of the HVAC systems. The high density of electrical power, sometimes several megawatts, increases the potential fire hazard caused by arcing, short circuits, smouldering fires or defective components, among other things.[2] Other common loss drivers seen to date in the CAR market include concrete slab defects, water ingress, and storm damage.

On the power side of the risk profile, losses include transformer failures and power equipment breakdown. The industry faces a shortage of experienced contractors and long lead times for critical components. For example, gas turbines now have an eight-year delivery horizon, which could exacerbate future loss scenarios. Integra recently reported that Siemens has a backlog of gas turbine orders valued at EUR 131 billion and Mitsubishi has also seen an increase in demand for its turbines.[3] This raises the risk of a limits loss for BI or DSU, and puts considerable stress on ICOW (Increased Cost of Working) expenses. There are similar issues, albeit not severe, in terms of availability of diesel generators often used as backup power supply.

The amount of investment in these projects is unprecedented, Insurers should be cognizant if there is a slow down or market correction surrounding over valuation of assets in the economy as some of these projects with huge investment could become less financially viable. Insurers should ensure that clauses are included in policies around cessation of works to cover for this eventuality. 

Global Footprint

While the US dominates the market, with ten times more installed data centre capacity than any other country, projects are proliferating worldwide. The UK has over 500 active data centres, making it the third-largest global market, with key clusters in London, Slough, Manchester, and Cardiff. Over half of the new centres within the UK are due to be in London and the home counties – many of which are funded by US tech giants including Google and Microsoft. Google chose the north London suburb of Waltham Cross for its data centre project which includes up to 667,000 sq ft of data centre facilities and was opened by the UK Chancellor Rachel Reeves last year. Equinix, a leading US digital infrastructure giant, is building a vast new Hertfordshire data centre campus—spanning nearly 30 football pitches. This deal paves the way for one of Europe’s largest and advanced data centre campuses.

At the end of 2025, the UK House of Lords approved regulations allowing large data centre projects to be considered as "nationally significant infrastructure projects". This change is intended to streamline the planning process for new facilities and allow developers to more easily bypass particular planning permission, which will undoubtedly lead to a major expansion of data centres within the UK.

Data centres powered by small modular nuclear reactors (SMRs) are on the horizon, with the US expected to lead adoption next year, followed by the UK. Several US power providers have indicated that they are in advanced discussions to power data centres through the revival of multiple shut nuclear power facilities and the installation of new nuclear projects. Just this month, the US Energy Department airlifted a small nuclear reactor from California to Utah as a demonstration of its ability to efficiently meet the energy demands of data centres. Ontario Power’s Darlington site is an example of smaller conventional nuclear projects already in play.

Conclusion

Data centres represent one of the most complex and high-value asset classes in today’s insurance landscape. With escalating valuations, intricate technical requirements, and evolving risk profiles, insurers and brokers must innovate in order to keep pace with this rapidly expanding sector while effectively managing the risks.