Data Centers on the Rise: Powering the Future, One Server at a Time
The opportunity
While some sectors may experience a more cautious outlook globally, the data center industry is generating significant excitement. Demand for data center capacity is expected to grow rapidly in the coming years, driven not only by customer needs but also by the swift advancement of artificial intelligence (AI). According to projections from the International Data Corporation, AI data center capacity is set to experience a compound annual growth rate (CAGR) of 40.5% through 2027.
Data centers must meet high standards set by often demanding customers, both during construction and throughout their operational life. Developers face considerable pressure to complete large, complex projects swiftly; however, maintaining quality and reliability remains a priority. Owners who fail to meet their 'Ready for Service' date or agreed-upon standards may face severe financial repercussions.
Therefore, effective risk management—including engaging with the global insurance market—is essential. The global insurance industry has increasingly recognized the significance of technology and digital infrastructure, focusing on both capacity and intellectual property deployment. By engaging with insurers strategically, opportunities can arise to secure favorable terms that transfer risk from investors and owners to insurers.
How GREAC can benefit your clients
With our specialized expertise and vast experience in these sectors, we are well-positioned to provide comprehensive advice and negotiate tailored insurance solutions to meet your clients’ specific needs in this emerging industry segment. This includes in the following areas:
- Construction - Addressing all stakeholders’ protection requirements.
- Real estate assets – Particularly providing valuable risk management advice to reduce the widespread impact and cost downtime caused by business interruption losses.
- Energy – Ensuring continuous power supply.
- Cyber – Protecting premises against digital crime.
- Transactional Risks – Protecting data center investors throughout the development cycle.
For full information on how GREAC can benefit your clients in this rapidly expanding industry segment, please click here to view our new Foleon Data Center microsite.
Our data center experience
In recent years we have placed the following data center projects, which includes two in the USA:
In addition, we’ve been appointed by NTT DATA Group for advisory/consulting pending the construction, real estate/property & casualty placement. We are also in the process of being appointed on KMW and Green Mountain (which will be an advisory/consultancy appointment at least).
In total we have USD 20 Billion+ of secured contract values.
Data Center Case Studies
EdgeConnex JKT02 Data Center in Jakarta, Indonesia
CHALLENGE
The primary challenge we faced was meeting the insurance requirements set by the project's lenders, particularly considering the extreme earthquake exposure in the region. They required coverage for Delay in Start-Up (DSU) along with full-limit natural perils coverage under Section 1 - Damage to the Works and Section 3 - DSU.
SOLUTION
Lockton was involved in all negotiations between our client and the lenders' advisors, consistently highlighting the low probability of securing earthquake capacity for the required sum insured and the extremely high cost it would entail. We recommended commissioning a PML (Probable Maximum Loss) study to understand the worst-case scenario the client might face in the event of an earthquake. As for the DSU coverage, there was no local appetite to underwrite the risk, which led to a 100% reinsurance placement in London using both Asian and European markets.
OUTCOME
Ultimately, we were able to satisfy the lenders with a tailored combined limit for Section 1 and 3 designed to meet the project's specific features, offered at a price aligned with market standards for such situations.
EdgeConnex DUB04/05 Data Center, Dublin, Republic of Ireland
CHALLENGE
When the client informed us about this project, construction works had already started three months earlier, making time a critical factor in securing a fully comprehensive policy within a record timeframe.
SOLUTION
Given the urgency, our team had to act swiftly and efficiently, engaging with key underwriters to expedite the placement process. We prioritized identifying markets with an existing relationship with the client, the capacity and appetite for data centers, while ensuring that all necessary coverages were in place. This required meticulous coordination, leveraging our expertise and existing market relationships to coordinate an early works policy with a small limit of liability while we were gathering the necessary technical information for the whole placement.
OUTCOME
Recognizing the urgency and the potential exposure, we worked quickly to establish a robust solution, ensuring that the client had an adequate level of protection in place during this interim period, until the full, comprehensive policy could be finalized. This involved liaising with insurers to secure basic coverage.