A recent high-profile report highlighted a growing challenge for data centers: despite abundant insurance capacity, large data center projects are struggling to secure sufficient coverage. This may seem surprising given the available capacity in the market, but it reflects insurers’ increasing need for a more detailed understanding of the risks they assume.
Data centers sit at the intersection of real estate and digital infrastructure, creating a risk profile that doesn’t fit neatly into traditional underwriting frameworks. As a result, carriers are increasingly cautious, not because they lack appetite, but because they lack the tools to fully quantify this interdisciplinary exposure.
Dual Nature
From an investment perspective, data centers offer exposure to both stable real estate income and high-growth digital demand. For insurers, however, their risk profile extends beyond physical assets to continuous operational performance, creating a level of complexity not easily captured by traditional underwriting approaches.
Physically, data centers resemble large-scale infrastructure, with exposure to fire, flood, and natural catastrophe. But unlike typical commercial properties, their value is concentrated in highly sensitive equipment operating within tightly controlled environments, where even minor disruptions can lead to significant financial impact.
At the same time, performance depends on interconnected systems such as power, cooling, and connectivity, and the contractual obligations tied to uptime. As a result, risk cannot be assessed purely through a property lens or fully captured by conventional technology or cyber frameworks.
This combination creates a fundamentally different risk profile, requiring a more integrated and specialized approach to underwriting.
BI Risk
In data centers, losses are not limited to direct revenue impact. They often have multiple dimensions, ranging from immediate loss of income to longer-term financial consequences driven by SLA penalties, service credits, and potential customer churn.
Traditional BI models are designed to indemnify measurable losses, typically based on delayed production or lost sales. In contrast, data center disruptions can trigger contractual liabilities and downstream financial impacts that extend beyond the operator’s own revenue.
The challenge becomes even more complex when considering third-party exposure. If thousands of customers are unable to operate due to a disruption, the broader economic impact is significant, but difficult to capture within conventional BI frameworks.
SLA Coverage
One area where financial exposure is clear is data center operators’ commitments to their tenants under Service Level Agreements (SLAs). These commit operators to strict uptime guarantees, with penalties or service credits that must be paid to the tenant when they fall below these standards, even for just a few minutes. It is often in the form of a revenue forfeit. The size of indemnities is relatively straightforward to forecast and calculate, but underwriting the risk is difficult, due to all the various causes that could lead to a service interruption.
Taken together, all of these factors make data centers difficult to insure, but technology offers part of the solution, because it can be deployed to help assess risks like downtime.
To unlock insurability at scale, the market needs to move away from monolithic coverage structures and toward a more modular approach. A massive, vulnerable data center doesn’t need to be insured under a single policy. Segmentation will help to secure the total limit necessary.
Catastrophe risk can be carved out and assessed independently. The risk of other natural perils can also be underwritten on a freestanding basis. Technological risk can be isolated and subdivided. Conventional cyber risk may be removed from technology business interruption and separated from risks accruing under SLAs.
Each of these risks behaves differently, and each should be underwritten using the appropriate tools and data. The coverages can then be combined and presented to the client by the broker as a holistic offering of protection.
With that approach, the market can support even the largest and most complex projects. More importantly, it aligns insurance with how these assets actually operate today.
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