Insurers on Alert as AI Data Centers Expand... Tackling the Challenge of Complex Risks

Data Centers in the Age of AI: A New Insurance Risk
High-Value Equipment Concentrated—Minor Incidents, Major Losses
Risks Rising Across Generation, Transmission Facilities, and Cyber Threats

As investments in data centers continue to grow due to the widespread adoption of artificial intelligence (AI), the insurance industry is paying increasing attention to the complex risks inherent to these facilities. Massive amounts of electricity are consumed, and expensive equipment is densely concentrated, while new threats such as coolant leaks and cyberattacks are also emerging. Because even minor incidents can lead to large-scale property damage and operational shutdowns, there is a growing need to develop more sophisticated risk assessment and insurance coverage frameworks, especially since traditional insurance policies alone may not sufficiently clarify the cause of incidents or the scope of coverage.

According to the insurance industry on August 13, the Korea Fire Protection Association organized a technical seminar last month for practitioners from 11 non-life insurance companies, focusing on risk diagnostics and compensation related to data centers. The seminar examined how key data center facilities—such as power supply equipment, battery rooms, and HVAC systems—should be reflected in risk evaluations, and participants shared real-world inspection cases. The causes and pathways of data center fires, including recent incidents at the National Information Resources Service, were analyzed, and participants also discussed issues that can arise in the design of related insurance coverage terms and the claims process.

The insurance industry is focusing on data centers because these facilities require immense amounts of electricity and house high-value equipment in confined spaces, meaning that even small-scale incidents can result in major losses. If an issue arises with any part of the servers, graphic processing units (GPUs), uninterruptible power supply (UPS) units, or cooling systems, power failures, overheating, and system malfunctions can occur consecutively and potentially shut down the entire facility. An industry official explained, "Because a data center features an interconnected diversity of equipment, a single component failure could trigger a significant accident. It is therefore essential for insurers to assess not only individual equipment failures but also the possibility of incidents expanding in a chain reaction when evaluating risk."

Risks in Data Centers Becoming Multi-Layered: Power, Cooling, and Cyber Threats

In particular, as the liquid cooling method—where coolant circulates directly within server components to manage heat—becomes more widespread, some incidents are proving difficult to categorize in terms of cause and insurance coverage under existing policy wordings. According to global property insurer FM, water damage from coolant leaks accounted for 24% of total loss costs in data centers. Jinog Kim, Senior Research Fellow at the Korea Insurance Research Institute, noted, "With coolant leaks, the cause can be both equipment defects and water damage, making it challenging to determine the cause and the extent of coverage during the insurance payout process."

It is not just internal factors; the reliability of external power generation and transmission facilities is also crucial. In the event of malfunctions in essential equipment such as gas turbines and transformers, replacement can take several years, and procurement of some electrical components has been hampered by supply chain constraints, leading to delivery times exceeding two years after order placement. For this reason, if the power infrastructure is inadequate, a data center may be unable to operate normally even after construction is complete. In this regard, FM stated, "Failures of steam and gas turbines remain one of the most significant causes of losses and financial burdens among generation facilities. Since much of this loss can be anticipated and prevented, it is important to establish mid- to long-term risk management strategies that account for both equipment aging and replacement intervals."

Additionally, if a data center is targeted by a cyberattack, the consequences may extend far beyond data breaches—physical damage can also occur. If hackers disrupt the operation of power and cooling systems, this could result in simultaneous server overheating, equipment damage, and operational downtime. In these situations, if property insurance excludes cyber incidents or if cyber insurance does not sufficiently cover physical damages, a coverage gap may arise.

Within the industry, there is a growing call for a more refined system of risk evaluation and coverage, given the increasingly complex interplay of risks surrounding data centers. Yeonhee Kim, Research Fellow at the Korea Insurance Research Institute, pointed out, "During data center construction, operational stability may be compromised by a mix of factors, including delays caused by supply chain constraints for key equipment, instability in power and cooling systems, and cyberattacks. As a result, insurance providers overseas are proactively enhancing their coverage systems to address risks arising from every stage—from construction to operation—and are diversifying risk transfer mechanisms." She added, "With technological complexity and carbon regulation increasing uncertainty in calculating losses, the insurance industry needs to step up its preparations."

This content was produced with the assistance of AI translation services.