Marsh executives affirmed that data centres are an insurable asset class, however, their sheer size and scope create challenges, noting that these multi-billion-dollar facilities require careful risk engineering and strong engagement between project sponsors and re/insurers.
Speaking during the recent Digital Infrastructure Press Webinar hosted by Marsh, Mike Matthews, Global Digital Infrastructure Leader at Marsh, said that the unprecedented size and scale of today’s data centres make insuring these assets challenging.
“What we’re seeing right now is just sheer size and scope,” he said. “You have a $4 billion data centre with $10 billion worth of equipment in a single site facility. So, the size and scale is the challenge. And stacking that risk with multiple partners and carriers is obviously going to be the trend.”
Matthews noted that these projects require a lot of risk engineering upfront, including catastrophe modelling and site design.
“We talk about the acquisition phase—pre-development—so acquiring capital, land, power, tenant, you really have to evaluate all of that prior to making the investment as an investor. Getting that right upfront, looking at everything from the right EPCs, engineers, architects, designs, and proven technology, that all goes into that risk engineering process pre-insurance. And then all the capital in the reinsurance markets that we’re going to get creative with over the next few years, I think that’s going to be an integral part of the successful insurance modelling of these projects,” said Matthews.
Jeremy Goodman, Chief Client & Growth Officer for Guy Carpenter, the reinsurance broking arm of Marsh, reiterated that the data centre asset is insurable, but its coverage depends on whether insurers and reinsurers understand the risk, can quantify it, can measure the exposure, etc.
“The terms, conditions, coverage, and the capacity that is available will reflect the insurers and reinsurers’ knowledge and understanding of that particular asset,” Goodman explained.
He added, “Those that engage the insurers and reinsurers to help them understand how they’re approaching the project, how it’s going to be built, which contractors are going to be used and so on, will increase that comfort level. Overall, to meet a lot of the needs and the fast pace with which this is moving, there can be improved communication and engagement between the various different sponsors and principals, and the insurers and reinsurers, that will increase the knowledge, the understanding and the comfort level. As a result, I think that capital that is sitting on the sidelines, to some degree, within the reinsurance market will be more inclined to be able to come forward and deploy.”
Goodman emphasised that this will need to be done “a little more thoughtfully than it has in the past,” moving away from a site-by-site approach toward an interconnected ecosystem, enabling capital to be deployed at scale efficiently and sustainably.
During the webinar, Goodman also said that digital infrastructure represents one of the most significant capital deployment opportunities for the reinsurance market in a generation.
