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Data center growth will strain insurers, require more risk capital
An insurance-linked securities broker says the industry will likely use a mix of reinsurance, captives, catastrophe bonds, and sidecars to cover exposures beyond property, including cyber and power outage.
Data center expansion is creating mounting pressure on the insurance industry, according to Gallagher Securities CEO Jason Bolding, who said the buildout will require additional sources of risk capital to close a widening protection gap. In an interview with Artemis, Bolding argued that data centers bundle many different risk types that can stress capacity, including not only property but also cyber exposure, construction liability and surety, title insurance, general liability, power outage risk, and residual value. Bolding said the path forward for insurance-linked securities investors could start with familiar peak peril catastrophe coverage, where investors already have demonstrated they can support significant limits for standard cat perils. He added that this opportunity may broaden beyond the typical investor base seen in the catastrophe bond market. Beyond cat bonds, Bolding highlighted sidecars as another potential tool, describing them as a way for investors to participate alongside established carriers with aligned interests while gaining exposure to a wider mix of data-center risks. Overall, he said there likely will not be a single solution, but rather a combination of traditional insurance, reinsurance, captives, cat bonds, sidecars, contingent capital, and other institutional capital working together.