- Data center development is accelerating, with $2.7T projected in US spending through 2030, but insurance systems are struggling to keep up with the scale and risk.
- Mega-projects in storm-prone regions, especially Tornado Alley, are raising red flags for insurers who say traditional underwriting models weren’t built for billion-dollar campuses.
- Insurance capacity is being stretched, with premiums rising, new policy types emerging, and project risks increasingly being shared among multiple carriers to avoid overexposure.
Power First, Risk Second
Fueled by AI and cloud demand, data center developers prioritize power access over site safety in high-risk areas, reports Bisnow. Data centers are being built in high-risk areas like the Midwest due to proximity to major power infrastructure, not safety.
Garrett Johnston of Marsh summed it up: “Data centers will go where the power is… you’re not driving the bus from an insurance standpoint.”
Storm Risk Meets Billions In Assets
Insurers and contractors are grappling with the reality of multi-billion-dollar projects being developed in areas historically hit by tornados, wildfires, and floods. For example:
- Meta’s Hyperion campus in Rayville, Louisiana scored a 6/10 for wind risk.
- Google, Amazon, and OpenAI have facilities under construction in areas with moderate tornado risk.
The scale of these projects is unprecedented. A single site can carry up to $700M in insurable coverage—and some mega-campuses are worth $20B or more.
“This is what scares me,” said HUB’s Kirk Chamberlain. “We see smart investors and clients, but they’re not waiting for us to solve these problems.”
Get Smarter about what matters in CRE
Stay ahead of trends in commercial real estate with CRE Daily – the free newsletter delivering everything you need to start your day in just 5-minutes
Insurers Playing Catch-Up
Chamberlain and others warn that the property insurance market may be ill-equipped to handle a direct hit to one of these campuses. So far, a catastrophic event hasn’t occurred—but many say it’s only a matter of time.
If that happens, insurance premiums could skyrocket, coverage could tighten, and construction costs could rise dramatically.
Meanwhile, smaller firms like Flexential are adjusting, layering in supplementary insurance and compliance roles to protect projects. Still, insurance can eat up to 10% of the development budget.
New Products, Old Problems
To address the growing complexity, insurers have rolled out new products like:
- Data center lifecycle insurance (Aon)
- SLA-focused coverage (Lockton)
However, Chamberlain dismissed many as cosmetic: “These are more branding exercises than solutions. The systemic risk is the real issue.”
Why It Matters
These campuses aren’t just expensive—they’re critical. Data centers are bound by service level agreements (SLAs) that require uptime, so they must insure against both physical damage and operational disruptions. Any downtime can trigger major financial and legal liabilities.
Also at stake: advanced chips, irreplaceable equipment, and multi-year build timelines. With limited skilled labor and long lead times on materials, replacing a damaged facility is far from simple.
What’s Next
As data center development continues to grow, the insurance market must rapidly evolve to keep pace. But for now, developers are pushing forward, often ahead of the industry’s ability to manage the risk.
“You can’t shortcut insuring a $20B campus,” Chamberlain warned. “We’re stretching the entire global insurance system to its limits.”
