US data centre plans face rising storm exposure, MS Amlin warns

MS Amlin has warned that more than half of planned US data centre projects are being built in states at high risk of severe convective storms (SCS).

The specialty Lloyd’s insurer said 51% of planned US data centre projects, worth $670bn, are located in states exposed to high risk from tornadoes, large hail and damaging winds.

Its analysis of more than 670 data centre projects under construction or planned across the US found 320 facilities in states classified as high risk for SCS.

MS Amlin said existing data centres in high-risk severe convective storm states are valued at almost $20bn, suggesting future artificial intelligence (AI) infrastructure in storm-exposed regions could be nearly 40 times the value of existing facilities.

The insurer said the findings underline the scale of investment moving into states exposed to natural catastrophes, as hyperscale development shifts towards southern regions where land and power are more favourable.

Martin Burke, chief underwriting officer at MS Amlin, said: “These numbers highlight both the opportunity and the risk.

“Hundreds of billions of dollars of new digital infrastructure are being directed towards regions at higher risk of potentially destructive severe convective storms.

“When assets of this scale cluster in hazard prone regions, the potential loss severity from a single storm event can rise very quickly.

“This is a growth opportunity for the specialty insurance market, but the risks must be properly managed and understood.”

Severe convective storm has become a major driver of insured losses in the US.

MS Amlin cited figures showing severe convective storm events generated $52bn of insured losses in the US last year, making it the costliest region and peril globally.

The insurer also cited Swiss Re data showing insured losses from such storms have grown by roughly 8% a year since 2008.

MS Amlin’s analysis found 56% of 670 planned US data centres, representing nearly $800bn of investment, are in states highly exposed to either hurricanes, severe convective storms, earthquakes or winterstorms.

Some 27% of planned data centres, representing $440bn of investment, are in states at high risk of winterstorm, which can disrupt power networks and create complex business interruption risks.

Nearly a quarter, 21%, of planned data centres, amounting to $340bn of investment, are located in states at high risk of hurricanes.

Data centres in high-risk earthquake states account for 3% and $12bn of planned facilities.

MS Amlin said data centres are typically insured through multiple business lines, including property, cyber and credit and political risk.

The insurer warned that, without careful oversight, carriers can unknowingly accumulate exposure to the same facility across multiple policies.

To address the risk, MS Amlin has developed a proprietary aggregation monitoring database to track data centre exposures across its underwriting portfolios.

Burke said: “As AI investment accelerates, insurers must adopt more advanced ways to manage aggregation risk.

“If the industry is slow to address this challenge, it could restrict the deployment of capital and roll out of AI infrastructure.

“Our proprietary database of hundreds of US data centre projects lets us capture the risk not just from tightly clustered facilities but also from supporting infrastructure like power generation.

“This provides a far more accurate picture of overall exposure.

“This visibility allows us to deploy capacity responsibly to support the sector’s growth while maintaining underwriting discipline.

“The ability to monitor aggregation risk is becoming increasingly important as this class continues to grow.”