Carriers
Data center buildout puts accumulation risk, not capacity, at top of insurer agenda
By Insurance Wire Staff, . Insurance Wire.
The data center construction boom is producing real premium growth for property insurers, but the executives closest to it say the industry's main challenge is not finding enough capacity. It is knowing how much exposure already sits on the books.
Speaking at the Insurance Leadership Forum, sponsored by the Council of Insurance Agents & Brokers in Colorado Springs, senior figures from Aon, Willis, Liberty Mutual and EPIC Insurance Brokers & Consultants described a market where individual projects can be placed comfortably but where the aggregate picture is harder to read, according to Business Insurance.
Ryan Barber, global head of property at Aon in New York, told the conference that thousands of data centers are expected to be built globally, with many individual projects valued between $3 billion and $5 billion. Capacity at those sizes is not the constraint. "We've done placements now with limits as high as $8.5 billion, and that was over a year ago; we could probably do placements in excess of $10 billion now," Barber said. Aon puts the figure at more than $100 billion in new insurance premiums the sector could generate over the next five to ten years, Barber said.
The structural problem is that large campuses are built in phases, which means an insurer can end up holding builders risk and operational property exposure at the same site simultaneously. Add high-value computer equipment and dedicated power generation, and the potential for a single carrier or reinsurer to accumulate layered exposure to one project grows quickly. "The biggest struggle right now for insurers and reinsurers, for that matter, is to just track and understand the accumulation of risk that they're taking on from these data centers," Barber said.
Pat Donnelly, head of risk and broking for North America at Willis in Chicago, said aggregation management shapes both site selection and insurer selection. Some carriers are willing to span multiple construction phases; others prefer to write discrete segments. That preference matters to buyers structuring long-term programs across a campus that may take years to complete.
Marc Orloff, president of global risk solutions North America at Liberty Mutual in Boston, framed it as a balance-sheet question. "We all write a lot of property already, so it's all about managing tolerances. How much of our exposure do we want? How much volatility do we want on our balance sheets?" he said. Orloff also flagged geographic concentration as a compounding factor, noting that clusters of high-value facilities in areas prone to severe convective storms add another layer of uncertainty.
Property and business interruption capacity is broadly available, but Marc Kunney, chief client officer at EPIC Insurance Brokers & Consultants in San Francisco, pointed to a tighter corner of the market. "Where some of the challenges are is on the professional liability, which is a much more limited marketplace," he said.
On the revenue side, Orloff cautioned that not all of the premium the construction wave is generating will prove durable. Builders risk income will fall if the pace of new starts slows, and operational property premiums on completed facilities tend to run lower than the construction-phase figures. The implication is that carriers building their books around data center construction need to think carefully about what the portfolio looks like once the building stops.
The sector is not without political headwinds. Business Insurance noted that the boom has drawn public opposition in some states over electricity and water consumption, with proposals in some jurisdictions to restrict or pause development. Executives at the conference were broadly optimistic despite that pressure, treating data centers as a sustained growth opportunity rather than a cyclical one.
For underwriters, the near-term priority is exposure management rather than market access. The question of how much of any one campus, or any one geographic cluster, sits across a single carrier's property book is the one that will determine whether the premium growth translates into a profitable line or a concentration problem waiting for a loss.
Source: https://www.businessinsurance.com/data-center-boom-brings-premium-growth-aggregation-risks/
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