Managing risk as the data center boom continues
The global data center industry is undergoing explosive growth, fueled by a convergence of technological, economic, and societal forces. From the rise of AI to a surge in digital transformation, the demand for computing power and storage capacity has never been greater. But with opportunity comes complexity — and risk.
Several key trends are accelerating the expansion of data centers worldwide. Digital transformation across industries is driving up data storage and processing needs. Streaming, gaming, and e-commerce are pushing demand for low-latency, high-capacity systems.
Cloud adoption continues to surge as businesses migrate operations to scalable, remote infrastructure. The explosion of AI usage in the past two years has also added unprecedented strain on infrastructure. In some underserved regions, data demand is outpacing existing infrastructure, creating new markets for development.
AI is both a catalyst and a challenge for data center growth. Training and deploying AI models requires vast computing power, especially for tasks that rely on graphics processing units (GPUs). Generative AI tools are also adding to overall workload volumes.
Governments are investing in AI infrastructure, easing regulations, and passing supportive legislation. Meanwhile, major tech firms are investing heavily in power and cooling infrastructure to support AI-ready facilities. These facilities require specialized construction, with denser layouts, higher power consumption, and advanced cooling systems, such as immersive and water-cooled solutions.
The next few years promise dramatic expansion, with the global data center market projected to grow at a compound annual growth rate of more than 10% through 2030, according to Grand View Research. AI demand alone could drive a 165% increase in computing requirements for hyperscalers by 2028, according to Goldman Sachs. And by 2030, data centers globally are expected to consume 945 terrawatt-hours of electricity, more than double the amount they consumed in 2024, according to the International Energy Agency.
Hyperscale operators will continue scaling to support AI workloads. Edge facilities will proliferate to reduce latency for real-time AI applications. Power and cooling efficiency will become a key competitive differentiator.
While the opportunities are significant for companies involved in data center development and operation, it’s critical not to overlook key risks, including:
Power supply constraints and aging grid infrastructure.
Delays in regulatory permits.
Shifting trade policies.
Construction and design defects.
Cybersecurity threats.
Climate and weather vulnerabilities.
These and other risks could contribute to supply shortages or create downtime liabilities, which in turn can disrupt revenue streams, create bottlenecks for expansion, and hinder long-term planning.
To mitigate these risks, organizations should consider comprehensive insurance coverage. Key forms of insurance include:
Builder’s risk, which covers risks to property during the course of construction.
Delay in startup coverage, which protects revenues in the event that a project’s completion is delayed.
Professional liability, which protects professionals and businesses from errors and omissions while delivering professional services.
Property and business interruption, which protects against loss of or damage to property and resulting loss of business income.
Environmental liability, which provides coverage for pollution-related incidents, such as the unexpected release of contaminants.
Organizations should carefully evaluate the risks tied to service level agreement (SLA) breaches, as downtime can erode project IRR, increase cap rates, and create uncertainty for lenders and equity partners. Breaches often trigger not only direct financial penalties but also lost revenue, reputational harm, and strained customer relationships that can reduce enterprise value. To mitigate these exposures, Lockton has developed a first-of-its-kind SLA insurance solution that transfers the financial impact of downtime to insurers, providing investors and owners with greater certainty around cash flows and contractual performance of data centers. They should also consider exploring options to insure against potential damage to customer equipment — for example, Lockton’s marine cargo bailee product.
As the digital world continues to expand, data centers will remain the backbone of innovation. But building and operating them requires foresight, resilience, and the right protections.
