US$7 trillion data-centre boom is creating gaps in insurance cover in Apac: report

The Asia-Pacific region's data centre sector is experiencing rapid growth, driven by increasing investments in artificial intelligence infrastructure. According to a report by global underwriter Advanced Technology Assurance, worldwide spending on AI-related physical infrastructure is expected to reach around US$7 trillion by 2030, surpassing the GDP of most countries outside the US and China.

This surge in investment is expanding the need for insurance coverage in the industry, although finding adequate insurance capacity remains a challenge due to the interconnected and concentrated risks involved, such as power, construction, operations, cybersecurity, and downtime. Outage is a significant concern, with only three insurance companies identified as close to providing a solution for this particular risk.

Nearly half of major outages are attributed to power failures, which can lead to substantial contractual liabilities for data centre operators, especially when they have promised strict uptime to customers. Despite having redundant systems in place, data centres can still suffer outages due to system failures unrelated to physical damage, presenting a challenge for traditional insurance solutions that typically require physical damage to trigger coverage.

To address this issue, the market is exploring alternative solutions, such as parametric cover, particularly for retail and wholesale providers who account for about three-quarters of Asia-Pacific's data centres and have uptime commitments to multiple customers. As data centre supply and demand balance tightens in some markets, large technology customers have more leverage in contract negotiations, resulting in stricter liability provisions.

In regions like the US and Australia, where data centre operators face growing legal and community opposition due to concerns over water and electricity consumption and the impact on property values, liability exposures may be more pronounced. The risk of insured liability losses is relatively low, but the number of major lawsuits and arbitrations involving data centres has tripled since 2021, coinciding with the acceleration of AI investment.

Additionally, the expansion of data centres is increasing exposure to geopolitical risks, with 60% of data centre capacity accumulated between 2020 and 2024 located within 10 to 15 km of global conflict zones, a fourfold increase compared to the period between 2015 and 2019.