Author: Tom Harper
Data centers underpin today's digital economy. As investment accelerates, mainly driven by cloud adoption, artificial intelligence and digital transformation, organizations are building facilities at greater scale and speed than ever before. The risks themselves are not new. What has changed is their severity, concentration and interdependence.
The implications are this: Risk management must begin early and remain integrated across the full data center lifecycle. From site selection and construction through commissioning and operations, early decisions increasingly determine resilience, insurability and long-term performance.
Growth is reshaping the risk profile
The expansion of data center infrastructure illustrates how risk accumulates over time. Modern facilities concentrate significant capital, support critical operations across multiple organizations and operate with minimal tolerance for disruption. A single event, whether a construction delay, power outage or a cyber incident, can trigger cascading financial and operational impacts.
AI-driven workloads are a primary catalyst. A mid-sized data center can now consume as much energy annually as a large town, while hyperscale campuses may require hundreds of megawatts to gigawatts of electrical capacity. Rack densities that averaged 5 to 8kw just a few years ago now commonly reach 25-50kw with some capable of 100-150kw. Gallagher's perspective on AI data centers powering the digital economy explores how rising computing intensity is reshaping infrastructure design, energy strategy and risk planning.
What this means for organizations: Risk leaders are increasingly shifting from siloed risk management toward a holistic approach that considers how construction, operational, energy, contractual, environmental, political and cyber exposures interact across the lifecycle of a facility.
Construction risk: Decisions that carry forward
Many of the most consequential risk drivers emerge during construction. Compressed timelines, supply chain constraints and the complexity of power and cooling systems introduce exposures that extend well beyond project completion. The decisions made, and the gaps overlooked, during this phase often define both operational resilience and insurability for years to come.
Common program design challenges include delay‑in‑start‑up (DSU) coverage that lacks appropriate triggers, builder's risk policies that terminate ambiguously rather than accommodating phased handovers and misalignment between insurance programs and risk allocation provisions in contracts with contractors, tenants, lenders and utilities. At handover, when service‑level agreements with material financial penalties take effect, these gaps can lead to significant commercial consequences.
On‑site power generation has become one of the most consequential shifts in the sector's risk profile. In many cases, modern data centers effectively involve two construction projects: the data hall itself and a power generation facility. Gallagher's data center construction risk guidance examines these exposures in depth, including DSU structuring, natural catastrophe site risk, battery energy storage system considerations and professional liability issues associated with design‑build delivery models.
Why early engagement matters: Involving risk advisors and insurers early allows organizations to structure programs more effectively, reduce coverage gaps and minimize the risk of disputes or uncovered losses later.
Operational risk: Resilience as a strategic priority
Once operational, data centers function with little margin for error. Power interruption, cooling failure and equipment breakdown remain core exposures, but the scale of their impact has increased. Facilities now support interconnected systems and multiple tenants, meaning localized failures can quickly escalate into facility‑wide or multi‑tenant business interruption events.
Effective operational risk management typically aligns three areas:
- Engineering resilience, including redundancy in power and cooling systems and sufficient backup generation capacity
- Maintenance and lifecycle planning that anticipates failure modes before they occur
- Insurance structures, such as property, equipment breakdown and business interruption coverage, that reflect the facility's actual revenue profile and operational dependencies
Business interruption coverage requires scrutiny. Programs must respond to triggers relevant to data center operations. These triggers include phased occupancy, multi‑tenant arrangements and non‑damage scenarios such as grid failure or upstream infrastructure disruption that may not activate traditional property-based policies.
Cyber risk: An integrated exposure
Data centers sit at the intersection of physical and digital operations, making cyber risk a core operational exposure rather than a standalone concern. Energy management systems, building management systems and industrial control systems govern power distribution, cooling and physical access. A cyber event affecting these systems can result in tangible physical damage, overheating incidents, or facility-wide service disruptions that trigger property, liability and business interruption losses.
Gallagher's analysis of data center risk outlines how cyber and property programs should be aligned to avoid gaps and how business interruption losses stemming from cyber events can be quantified as part of a comprehensive risk review.
Implication for risk leaders: Understand how each policy responds to different loss scenarios and integrate insurance planning with incident response and technology security.
Insurance market dynamics
The insurance market continues to support data center growth with available capacity and strong underwriter interest. While sector losses have generally been manageable, underwriting expectations are increasingly well defined. Outcomes often depend on how clearly an organization can demonstrate its risk profile.
Insurers are putting greater emphasis on:
- Risk quality and transparency, including documentation of redundancy, resilience measures and operational controls
- Site selection and natural catastrophe exposure, with detailed modeling required for nearly all facilities
- The adequacy of DSU structures and their alignment with commercial operations timelines
DSU exposure warrants careful attention. The commercial consequences of failing to bring a facility online as scheduled can be severe, and a significant DSU loss could materially alter insurer appetite. Structuring DSU coverage before procurement begins remains critical.
The value of specialized broker expertise
The broker's role extends well beyond policy procurement. Gallagher's Data Center Solutions practice provides integrated risk advisory across construction, operations, cyber, energy and environmental exposures, supporting developers, owners, operators and lenders throughout the project lifecycle.
A strong broker partnership delivers:
- Catastrophe modeling and site selection analysis that informs design decisions before costs become embedded
- Integrated risk assessments identifying how exposures interact across construction, operational and cyber domains
- Effective market positioning, including access to specialized underwriting capacity and established insurer relationships
- Program design that reflects phased delivery, on‑site power infrastructure and each facility's specific revenue and liability profile
Data center expansion presents a meaningful opportunity paired with heightened risk. Organizations best positioned for long-term success treat risk management as a strategic function, engage experienced advisors early and design insurance programs to respond as assets scale and operations evolve.
Gallagher continues to monitor how accelerating investment is reshaping risk across digital infrastructure. For an additional perspective on how insurance structures are evolving alongside high‑tech construction, see High‑Tech Builds: Familiar Risks, the Insurance Reality of Data Centre Expansion.
