Viewpoint: Boom in Hyperscale Data Centers Puts Re/Insurers to the Test

Hyperscale data center campuses represent the latest growth opportunity for the global re/insurance industry.

Annual investment in these specialized facilities will likely surpass $300 billion by 2027 and the total insurable asset base for the roughly 11,000 data centers currently in operation already exceeds $2 trillion. On top of that, new premiums from hyperscale data centers are expected to reach $10 billion annually this year, dwarfing the global aviation insurance market’s $5 billion in annual premiums.

Yet the sheer magnitude of these assets tests the limits of commercial and specialist re/insurers.

Capacity Constraints Exacerbate Insurance Protection Gap

S&P Global Ratings estimates that total insurable values for a single hyperscale data center campus can reach between $20 billion and $30 billion. Even in the construction phase, valuations may hit the $30 billion mark. For comparison, insurance limits for traditional infrastructure projects like bridges or tunnels typically range from $5 billion to $10 billion.

Because no single insurer can shoulder these risks alone, multiple insurers and reinsurers must collaborate to bridge the gap between available capacity and increasing demand. But as projects reach unprecedented scales, it becomes increasingly difficult to insure them fully. Coverage has become more selective and many tail risks have moved onto companies’ own balance sheets.

Material risks, such as business interruption or the loss of expensive IT equipment, will likely remain self-insured or only partially insured, particularly during the operational phase. Insurance coverage also remains limited for cyber risk, which is difficult to model.

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However, the insurance protection gap isn’t just an insurance issue. It could increase the need for third-party capital outside the insurance industry, for example in the form of insurance-linked securities, and might become a capital-structure constraint for lenders who fund hyperscale data center projects.

For example, lenders and investors may shift toward assets that can be credibly restored. This focus on insurability can shape debt capacity and the role of equity. Since full replacement costs may exceed available insurance, a reduction in credit risk hinges on several mitigants.

These mitigants include guarantees, liquidity buffers, and strong sponsor commitments. In some cases, such as the Hyperion project, additional guarantees cover insurance shortfalls.

Rising Aggregation Risks Increase Need for Insurance

Re/insurers face significant concentration and aggregation risks in the data center sector. Large campuses concentrate high-value assets in a single location, which increases their vulnerability to natural catastrophes like tornadoes or other physical climate risks.

The interconnectedness of risks through multiple stakeholders, supply chain disruptions, and cyber threats also contribute to aggregation risk. As a result, an insurer might end up exposed to the same data center through various different products. This creates a need for high-quality data and the ability to track exposures accurately.

However, the campus-style nature of hyperscale data centers complicates traditional underwriting frameworks. Insurers must manage these risks through disciplined risk selection and capital management. Sophisticated insurers with strong modeling capabilities are likely to lead this underwriting effort.

Against this background, business interruption insurance is becoming critical. While relatively straightforward for property developers, it is much harder to implement for hyperscale data centers because downtime is intricately linked to computing capacity, power utilization, and interconnectedness. To manage this, hyperscalers often cover a significant portion of this exposure through their own captive insurers.

Beyond that, demand for service level agreement (SLA) insurance is rising, as investors face penalties and termination agreements. However, a supply/demand imbalance currently exists for this specific type of insurance.

Current coverage often excludes non-physical damage such as power outages and incorporate waiting periods that mean hyperscalers must cover initial losses after a business interruption themselves. Therefore, policy wording must be extremely specific regarding the scope of coverage. As facilities move from construction to operation, the demand for SLA insurance will only increase.

Insurance Evolves During Project’s Lifecycle

Coverage differs significantly, depending on whether a project is under construction or operational. Typically, the largest sums offered by insurers cover property-related risks. This includes construction-related risks, delays, property damage, and operational business interruption.

Project cargo insurance is also used to cover the transportation of essential equipment. On the casualty side, insurers cover third-party liabilities and workers’ compensation. Professional indemnity for error or negligence and environmental liabilities are also covered, as are technology- and cyber-related risks. In these cases, policies must continuously adapt as new risks emerge.

Insurance is increasingly a case of several insurers taking on part of the risk. These insurers step in at different levels of loss, which increases the total amount covered.

Specialized commercial insurers are emerging as leaders in the data center insurance market. These companies have great expertise in engineering and construction risk management, and are well versed in traditional property risk. That said, the complexity of hyperscale data centers introduces new challenges.

The rapid construction timelines of these projects require specialized underwriting discipline. Insurers are responding by increasing capacity and adapting their product types, with some large insurers already expanding their per-risk limits to meet demand. However, they must maintain strong underwriting discipline due to limited historical loss data.

The most sophisticated insurers will use advanced modeling to manage large-scale coverage. This expertise is essential for navigating the evolving nature of data center risks. As the market develops, these specialized players will be central to support insurance response.

Risk Management Is Core Corporate Strategy

Large hyperscalers manage the risks they face through distinct corporate strategies and often use captive insurers to cover significant portions of their own exposure. At the corporate level, retained risks are mitigated through scale and geographic diversification.

While data center outages can impair earnings, the impact is often mitigated by substantial liquidity reserves. This, together with operational redundancy, means hyperscalers are relatively well positioned to absorb retained exposures like business interruption.

However, they face increasing uninsured risks as project scales reach unprecedented levels. To manage these, many hyperscalers shift toward phased and flexible capacity models that allow for more controlled growth and a smoother transition from construction to operational property coverage. Ultimately, hyperscalers must balance aggressive growth with disciplined risk selection.

Adapting to Evolving Requirements of Digital Economy

The future of the data center insurance market depends on managing scale and complexity. Even though re/insurers are starting from a position of strength, increasing insurance coverage limits and underlying exposures warrant very close attention.

Key focus areas include underwriting expertise and policy wording. Long-term reserving challenges and claim response times will also be critical. Additionally, re/insurers’ management of concentration and aggregation risks will be crucial.

As the demand for AI infrastructure continues, the scale of data centers will likely increase, which makes the integration of insurance, project finance, and corporate balance sheets even more important. For the insurance industry, the challenge will be to keep up with the evolving requirements of the digital economy without compromising disciplined underwriting.

Photograph: An Amazon Web Services AI data center is pictured in New Carlisle, Ind., on Friday, Oct. 3, 2025. (Noah Berger/Amazon Web Services via AP Images)