AM Best: Data Centers Pose Risks Beyond What P/C Industry Has Experienced

Motley, complicated risks are presented with the proliferation of data centers across the U.S. to bolster critical infrastructure for artificial intelligence.

A new report from AM Best outlines “substantial insurance demand” evolving for the warehouse-sized facilities of computer servers.

“With the number and size of AI data centers growing rapidly, it is critical that P/C insurers provide solutions to support these highly complex, high-valued projects,” said AM Best.

“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,” added David Blades, associate director, industry research and analytics, at AM Best.

According to the report, there are no low-level hazards when considering primary risks associated with the building and running of data centers. Business interruption, the industry financial rating agency said, may be the most consequential since partial or total shutdowns could prove significantly costly, and data centers are part of an interconnected network that can affect other facilities, clients and services. Parts to repair or replace damages may be hard to come by, and claims disputes could also be a major factor.

Related: Willis’ Haitsch: Insurance Industry Swiftly Adjusts to the Data Center Boom

Also classified by AM Best as high hazard risks are commercial property and environmental liability. As far as the former, the high-valued property within data centers, losses can be catastrophic—and not just by way of natural catastrophe. AM Best noted these projects are going up so quickly that there is a worry some corners may be cut in their construction.

Focusing on environmental, the tremendous amounts of water and power needed for cooling data centers creates potential for disaster for high losses if water or power is unlimited for local communities. Third-party lawsuit could arise, AM Best said.

Related: AI to Double Data Center Power, Water Use by 2030, UN Researchers Say

Looking to cyber risk to find a potential cascade of losses following a disaster. Exposure to first- and third-party cyber claims may vary, but a single cyberattack could reverberate to physical damages, a BI loss, or a data security breach.

Not to go without mention, insurers’ assets may be exposed through private equity partnership, private credit investments, or other financial arrangement since data-center projects need significant capital.

Topics AM Best Property Casualty Market