Insurance Risks Surge as Data Center Investments Skyrocket

The surge in investments in data centers is reshaping the insurance landscape, presenting challenges that brokers must navigate carefully. According to a recent report from Allianz Commercial, annual investment in data centers is projected to nearly double from approximately $500 billion in 2024 to over $1 trillion by 2027. This shift will likely drive the global insurance market for data centers from nearly $11 billion today to upwards of $24 billion by the end of the decade.

As construction ramps up, claims are already beginning to surface, revealing a more concentrated and interconnected risk environment than previously anticipated. Allianz’s analysis indicates that fire, responsible for more than 50% of the approximately €700 million ($800 million) in assessed losses, remains the primary cause of severe financial impacts. Following fire, natural catastrophes, deliberate acts including crime and cyber incidents, and power failures also contribute significantly to claims. Water damage emerges as the most frequent cause by volume, while business interruption accounts for the highest severity among insurance lines.

The growing exposure to natural disasters is evident as construction expands beyond traditional hubs. By 2026, an estimated 64% of US data center capacity under construction will be located outside established markets like Northern Virginia, pushing development into regions with higher risks of tornadoes, hail, and severe storms. Allianz finds that around 79% of the world's data center capacity is situated in areas prone to natural disasters, with 54% of projects under chronic heat and drought stress. The potential for acute flooding, wildfires, and wind damage affects 86% of data center assets in the Americas.

Northern Virginia, known as the largest data center market globally, stands out in the report as one of the most climate-vulnerable growth regions, alongside Johor in Malaysia and Marseille in France.

A workforce shortage adds another layer of risk, with the US data center construction industry facing a deficit of approximately 439,000 skilled workers and expecting a need for an additional 349,000 workers by 2026. Tight labor markets and elevated competition for specialized workers can compromise construction quality, further increasing the likelihood of claims tied to faulty workmanship.

The hyperscale data center isn't a typical property risk; a single site can house multiple tenants and integrate extensive operational complexities. This means a single incident can trigger claims across various insurance lines including property, construction, business interruption, liability, and cyber coverage.

Allianz’s data shows that damages to external cooling systems, fire incidents stemming from construction activities, and power disruptions can result in losses ranging from $50 million to $100 million. The capital expenditure for a hyperscale AI campus can exceed $20 billion, and once high-performance computing systems are deployed, the insured values rise dramatically.

Christian Kolbe, Allianz Commercial’s global head of construction claims, underscores the shift in underwriting focus from merely assessing building value to examining the concentration of value and interdependencies among facilities. "Insurers need to understand not just the building's worth but also the risks associated with its concentrated systems—like power supply and cooling mechanisms," he states.

For brokers, the challenge of covering data centers involves navigating multiple insurance lines simultaneously. Aon has responded by expanding its Data Center Lifecycle Insurance Program to $5 billion in capacity, offering integrated coverage that spans construction, property, business interruption, cyber threats, and liability. S&P Global Ratings anticipates that the data center insurance market could generate $10 billion in new premiums by 2026, effectively doubling the size of the entire global aviation insurance market.

Thomas Lillelund, chief executive of Allianz Commercial, asserts that comprehensive insurance coverage is now essential for financing many large-scale AI infrastructure projects. "Resilience is paramount, hinging on reliable power access, dependable supply chains, rigorous construction oversight, and climate-conscious site selection,” he emphasizes.

However, the situation requires brokers to recognize that data center risks cannot be managed through standard property insurance frameworks. Willis has flagged that some facilities may be over-insured overall but under-insured in specific risk areas, a discrepancy that often reveals itself only at the time of a claim. Alastair Swift, head of the global digital infrastructure group at Willis, insists on the importance of understanding the nuanced coverage clients genuinely need. "Effective modeling and risk comprehension allow clients to create resilient insurance programs that accurately reflect their exposure," he notes.

The Swiss Re Institute’s July 2026 sigma insights report highlights that large data centers are often presented to insurers through discrete programs covering various components—buildings, equipment, and power plants—making it challenging for carriers to gauge total exposure. When a singular loss event occurs, it can impact multiple programs concurrently.

Allianz Commercial’s core message emphasizes building resilience into planning from the outset. For brokers catering to clients in industries influenced by construction, technology, real estate, and finance, time is of the essence to address these pressing conversations.