The demand for data centers is skyrocketing as artificial intelligence (AI) technologies rapidly evolve. This growth is pushing traditional infrastructure and the insurance industry to their limits. A recent report from Goldman Sachs predicts that global data center power consumption will increase by 160% by 2030, mainly due to AI workloads. This surge means that tasks like processing ChatGPT-like queries require up to ten times more energy than standard web searches, raising concerns about power grids and environmental impact.
As data centers expand, a key question arises: Is the insurance industry ready to meet the changing needs of this sector? Randy Hodge, COO of FM Global, a commercial property insurance provider, notes that a new data center typically requires insurance coverage ranging from $500 million to $700 million. However, many operators are now building multi-building campuses that can cost over $2 billion, creating challenges in securing adequate insurance coverage.
Tech giants like Meta are investing heavily in new AI-focused data centers. For instance, the company plans to spend hundreds of billions of dollars on these facilities across the U.S. One notable project is Prometheus, a massive data cluster in New Albany, Ohio, set to launch in 2026. Another facility, Hyperion, is being developed in Louisiana and will eventually rival Manhattan’s size.
As data centers grow in size, so does their risk exposure. Hodge mentions that while FM Global can provide up to $2 billion in coverage for large facilities, there remains a significant gap in the insurance market. Data centers operate continuously, meaning any downtime can have serious financial consequences. Therefore, resilience is a top priority for operators.
One major risk for data centers comes from battery energy storage systems, especially lithium-ion batteries. These batteries are crucial for maintaining operations during outages but can also pose severe fire hazards. Hodge warns that once these batteries catch fire, they are extremely difficult to control, endangering both the facility and its critical infrastructure.
Natural disasters also present challenges, particularly in regions like the South and Midwest, where data centers are often located. These areas face threats from hail, tornadoes, and flooding. As more operators turn to renewable energy sources, they must also manage risks related to mechanical failures and operational errors.
Moreover, as data centers serve as hubs for various clients, there’s a growing need for specialized insurance coverage. These facilities often lease space to multiple clients, each with their own hardware. Contracts usually include strict service-level agreements, and failing to meet these can lead to hefty penalties. Hodge points out that many insurance policies do not adequately cover these liabilities, creating gaps that need to be addressed.
Looking ahead, the insurance industry must adapt to the rapidly changing landscape of data centers. This shift requires strong partnerships and a willingness to evolve alongside technological advancements. FM Global has recently launched an initiative to assist clients in managing risks associated with the AI and data center boom. This program includes increased investment in loss prevention and the introduction of a virtual expert resource unit for rapid response support.
As data centers become more resilient, the benefits will extend to their clients, reducing vulnerability to downtime. The insurance industry faces a crucial task: to keep pace with this fast-evolving sector and ensure adequate coverage for the growing demands of data centers.