Insurers face a new data-center risk: concentration

• Key insight: Uncover how surging data center construction is concentrating multi-billion-dollar risks in severe weather zones.
• What's at stake: Insurers facing massive aggregation risks as single-facility costs reach up to $40 billion.

The boom in data-center construction is creating a new concentration of risk for insurers, with individual facilities costing billions to build and located in areas exposed to severe weather, according to Howden's latest research on data-center risks.
The full construction cost of a single data center can reach up to $20 billion, or up to $40 billion with all of the technology installed, creating an aggregation risk and demand for very high limits, which Howden describes as both an opportunity and a challenge for insurers.

"Being able to gauge exposure to severe weather means being able to make smarter decisions around site selection, risk mitigation and how insurance capital is deployed," said Stuart Adam, head of natural resources at Howden U.S. "Despite exposure to extreme weather, these nat-cat prone areas are often chosen for access to power and space. This need for power is also seeing data-center developers and owners across the U.S. increasingly becoming power-plant owners and managers in their own right. That creates a litany of new exposures that developers, investors and insurers need to understand long before breaking ground."

Natural-catastrophe risk is highly concentrated among a significant number of major data-center hubs in a small number of locations across the U.S., according to Howden's analysis of data from the National Atlantic Oceanic Association (NOAA) and 451 Research by S&P Global.

The report identifies 155 data centers that have been impacted by at least one severe hailstorm or tornado within the past decade, and just 20 of these locations account for 81% of U.S. data-center-impacted square footage. The combined data centers affected by an extreme weather event over the last 10 years have generated about $16 billion in annual revenue. 

Howden experts suggest that insurers take these findings into consideration, as the concentration of data centers at risk of extreme weather exposure creates a critical need for diversification across risk portfolios and share of peak risk exposures across the insurance industry and capital markets.

"The AI boom is fueling huge investment in data centers globally but as our analysis shows, the risks associated with this expansion are wide-ranging and increasingly complex," said

Edward Howland Jackson, Howden's chief commercial officer of global specialty. "For data-center operators, developers and investors, understanding where these risks are concentrated is critical. The opportunity for the insurance market is not simply to provide more capacity, but to use data, specialist advice and risk transfer to help clients identify these exposures early and build greater resilience as the sector expands."

Introductory bullet points created by AI with editorial review.