Data centre proliferation presents challenges and opportunities for insurers

As data centres proliferate in Canada and across the globe, their dominant physical brick-and-mortar style presence, and ability to hold massive amounts of sensitive information using the latest technology provides new challenges to insurers. 

Data centres present insurers with “a massive industry-defining opportunity for the next five to ten years, likely the foreseeable future in Canada,” says Chris Johnson, technology industry leader for Canada with Marsh Risk in Toronto. 

“There are opportunities from the operations side, from the property piece, to the cyber risk and E&O side. Massive revenue potential for the business investment side, but also through the construction and pre-build pieces. There are a huge course of construction and builders risk opportunities as well, alongside supporting cover for new partnerships and joint ventures,” he elaborates. 

“There are a wide swath of opportunities available for carriers who have appetite,” Johnson stresses. 

Unique risk profiles 

“Some of the risk profiles that data centres present are unique,” says Alex Barker, chief underwriting officer for large commercial at AXA XL Canada in Calgary. 

For example, he notes, data centres are large and concentrated in specific locations. They require a strong energy power infrastructure, including a constant supply of energy during both the construction and operational phases. There is also a high risk of fire exposure, which requires property insurers to focus on understanding fire mitigation, fire risk management and fire suppression. 

Data centers are also a potentially large target for hackers, warns Walid Khayate, vice-president and national practice leader for cyber and ERM at BFL Canada in Montreal. 

Without insurance, the financial implications of losing control of that information could be enormous.

"If I'm a carrier with a data centre as a client, but I also have several of their occupants on my books as well, I could have multiple claims coming at the same time – from the same loss, or from a knock-on event. These could be physical losses, digital, or encapsulate both as well, and can expand in size exponentially – very quickly,” says Johnson.

Data centres are also becoming an integral part of the critical infrastructure landscape today.

“There is no greater juxtaposition, in my opinion, than what you see in data centres and in modern mass computing, and the merging of the physical and the digital,” says Johnson.

There needs to be a better understanding of how the physical and digital elements of a data centre interconnect, and how they operate in regards to various traditional insurance policies, he adds.

Protection for massive expenses 

How expensive are these massive new data centres? 

Brian Hearst, managing director and global lead for construction builders risk with Aon, who is based in Park City, Utah, says that within the last five years, the average cost of building a global data centre has risen from a range of U.S. $250 million to $400 million to between about $1.5 billion to $2.5 billion today. 

In Canada too, going forward the pipeline for data centre projects is leaning more towards large and mega projects, says Chris McLean, the Vancouver-based managing director and national leader of construction and infrastructure with Aon in Canada.

These large data centres are being required to develop their own power generation, he adds. “They may not be able to necessarily just hook up to, as an example, the Site C hydroelectric dam in British Columbia, and use power being generated,” McLean says. 

Johnson says that digital infrastructure, which includes data centres, plus distribution networks, towers, communications, energy and power, along with roads and access, contain three components in terms of insurance-related risks and opportunities. These include the pre-planning stage, the construction stage, and the operations stage.

But insurance can be particularly complex because often those stages are not neatly defined, and can even overlap.

Traditionally with phased construction there might be one insurer leading builders risk, says Hearst. But if there are say, three phases to the data centre project, with each one scheduled for completion four months apart, when those individual phases are completed, and the data centre is ready for service it would move to permanent property insurance. 

“The problem is [if] you still have construction on phase two and three going on, what happens if you have a fire in phase two that spreads to the operational [phase] and you've got two carriers going?” asks Hearst. 

Incredibly complex 

Furthermore, while “these may be concrete warehouse type buildings, what goes in there is incredibly complex,” Hearst adds, noting that data centres have HVAC and cooling systems, piping, core and shell transformers, right switch gear, copper wire, and other items of that nature.

“Construction wise, the real challenge is capacity, because some of the data centres can be fairly significant in size,” says Jon Tondeur, managing vice-president and national practice leader for construction at BFL Canada in London, Ont. “The size of the project and finding capacity at a premium that's acceptable is the biggest challenge,” he elaborates.

From an insurance perspective, construction risk means looking at property insurance for typical operational liability issues, as well as cargo exposure or marine exposure as equipment comes on board, says George Haitsch, technology, media, and telecom industry leader and managing director of Willis Towers Watson Co. in Philadelphia. 

The location of the data centre and source of power are also noteworthy. “One artificial intelligence focused data centre is at a scale that's much larger than the data centres that previously existed, and they typically would draw the same amount of energy as a smaller city in a day,” explains Haitsch.

That can create grid instability and the potential for having rolling brownouts at times when power grids might face extreme demand, such as during a heat wave. 

Data centres are also water intensive for evaporative cooling and heat intensive for liquid cooling and immersion, which could cause difficulties in the face of drought and water use regulations, he adds.

Pollution liability for existing contamination is also a potential issue with data centres, says Nicholas Pearson, an environmental liability underwriter with Beazley Group in London, U.K. 

“The submissions we get involve what we call brownfield sites that have been previously used for other industrial purposes. These are prime spots for potential development and the legacy contamination risk is a focus for us.  

If the site's going to be redeveloped then insurance is an important enabler, but how the site is presented to us at the time of underwriting can impact coverage,” he explains. 

Furthermore, when the new data centre site is developed, new pollution conditions may arise when existing structures are demolished, such as the releasing of asbestos dust, which can also impact insurance coverage, Pearson adds.

Forefront of cyber and technology 

“Data centers are very much in the forefront of today's accelerating risk within cyber and technology,” says Sydonie Williams, head of international cyber risks with Beazley Group in London, U.K. 

“We certainly see that within our portfolio, the world is increasingly digitalized. Data centers are at the epicenter of that, the lifeblood, to a certain extent, to enable the world's digital connectivity. And the spectrum of cyber risks [is] broadening,” she adds.

Criminal cyber activity, nation state activity, and hacktivism have all accounted for claims trends. Data centres can be “quite an attractive epicenter” for all those groups in terms of causing disruption, given how dependent many businesses are on them, says Williams.

“We are seeing ever evolving attack methods employed by criminals and the increasing risk posed by third party attacks. No business is immune. Even if you are not the data center operator, you as a business might subsequently be dependent on one. So we have both first party and third party risk exposure here,” she explains.

Haitsch says the release of ChatGPT and explosion of artificial intelligence in recent years has produced a dramatic change for how insurers, brokers and clients needed to proceed regarding data centres because AI requires a significantly larger and higher degree of computational power, and energy. 

Business interruption coverage is a massive opportunity and a concern as well, says Johnson, who adds that “we are seeing unparalleled values in regards to BI requirements and BI limits that are being obtained.” 

The most concerning challenge is the potential for a ‘black swan’ catastrophic event, “a one time event that occurs that knocks everything out for a period of time, which can very quickly lead to a multi-million [dollar] claim,” says Johnson. 

“When you look, especially at some of the newer, larger data centres that are leveraging AI and high computing power, high megawatt usage, you’re seeing a very high density of server racks and server blades. You're seeing a very high density in battery backup,” says Johnson. 

He adds that lithium-ion batteries run the risk of creating thermal runaway, the cascading effect of one item heating up another item, and running through the entire system. 

Insurers stepping up 

There are many new innovative new insurance products available with respect to data centres. 

For example, Marsh has established a unique data centre specific construction insurance facility called Nimbus, which is available in Canada, the United States, United Kingdom, Europe and Australia and New Zealand, says Johnson. 

It provides up to U.S. $2.7 billion to cover for property and construction based risks as well as supporting energy, power and cybersecurity needs, he explains.

Aon has developed a proprietary data centre insurance program, The Data Center Life Cycle Insurance Program (DCLP), which launched in July 2025, provides coverage of up to U.S. $2.5 billion. This comprehensive program covers both construction and operational risk, taking into account situations where data centres are built using phased construction targets, says Hearst. 

Willis is looking to launch a product in April [2026] that addresses the continuity of coverage that is required for data centres from construction through operation, says Haitsch. “We're in the final stages of working with carrier partners to come out with a solution that will be specifically available to Willis clients in North America, Canada included,” he adds.