Data Center Growth Drives Insurance Demand

With the advent of AI and an increasingly data-driven world, data centers are more important than ever. Many companies are scrambling to develop data center capacity to meet the demand for AI and cloud computing. These projects are often massive in scope, involving serious manpower to build, operate, and power new data centers. Data center development comes with a litany of risks, and many companies are turning to their insurance policies to protect themselves. A recent McGuire Woods memo discusses how data center developers are using insurance to offset risks, including:

• “Construction & Builders’ Risk:  Data centers involve high‑value assets, complex systems, and tight timelines. Coverage must be able to span multiple contractors without interruption. Owner‑Controlled Insurance Programs (OCIPs), and builders’ risk policies help minimize gaps.
• Energy Supply & Environmental Risk:  AI‑driven infrastructure is dependent on stable grids and cooling systems. Policies may need to account for grid disruptions, heat stress, and water supply challenges—a rising concern as extreme weather becomes more common.
• Operational & Cyber/AI Liability:  Once live, data centers support AI-driven systems that introduce unique cyber exposures including deep‑fakes, data poisoning, and autonomous‑system failures. Insurers are increasingly responding by introducing “AI exclusions” or requiring policyholders to purchase specialized cyber/E&O enhancements to address these emerging risks.
• Casualty & Excess Exposure:  Worker injury, third‑party damage, and equipment failures necessitate comprehensive excess casualty protection.  High‑limit umbrella policies provide contingent defense and indemnity in catastrophic scenarios.”

The memo encourages companies to seek a comprehensive and proactive insurance strategy. This includes using centralized policies that cover multiple contractors working on the site. Data center development is the physicalized result of AI development, and that comes with physicalized risks. Companies should consider their coverage needs from both an intangible and physical perspective and ensure that all risks are accounted for.