Data centers need mixed risk protection strategies
The rapid expansion of data centers is straining the insurance industry, forcing it to rethink how it covers the risks involved. Jason Bolding, CEO of Gallagher Securities, argues that a mix of traditional insurance, reinsurance, captives, catastrophe bonds, and sidecars will be necessary to address the challenges.
Exposures span property, cyber, and beyond
Data centers bundle a wide range of risks—property damage, cyber threats, construction liability, power outages, and even residual value losses. Bolding told Artemis that the scale of these exposures could create bottlenecks, making it difficult for insurers to absorb them all.
For investors familiar with insurance-linked securities (ILS), the most straightforward entry point is peak peril catastrophe risks. These are well-understood hazards, and the market has already shown it can support large limits for standard catastrophe perils.
Bolding believes the sector’s growth could attract new investors who see insurance risk as a way to participate in what he calls “one of the most significant infrastructure build-outs of our time.”
Sidecars and alternative capital step in
The sidecar market, which has gained momentum in recent years, could play a key role. These structures allow investors to partner with established insurers, sharing risks while gaining exposure to a broader range of data center-related hazards.
Related: Big loss may not spark hard market
“Sidecars are a particularly interesting solution,” Bolding said. “They let investors align with carriers while accessing a more diverse set of risks.”
The sheer size of data center projects is pushing the industry toward alternative capital sources. Traditional insurance alone won’t be enough, Bolding warned. Instead, he expects a combination of reinsurance, captives, catastrophe bonds, and contingent capital to work together.
Bolding’s comments echo similar views of rating agency S&P, who recently indicated that as capacity constraints may limit the insurance industry’s ability to fully insure hyperscale data center projects, this could lead to greater use of self-insurance through captive insurers and potentially alternative capital such as insurance-linked securities (ILS).
Bolding’s assessment leaves little room for doubt: the industry will need every tool at its disposal. “I don’t think there will be one solution,” he said. “It will be a combination of everything working together.”
