As AI Data Center Risks Mount, Insurers Team Up

AI data centers put insurers' underwriting capacity to the test
Samsung Re and others move to establish joint underwriting framework
Concerns grow over insurers' capacity to cover mega-risks

As artificial intelligence (AI) data centers grow larger, concerns are mounting over gaps in coverage under existing insurance policies, prompting the insurance industry to step up its response. Because an incident could lead to massive losses, critics say insurers lack the underwriting capacity to provide adequate coverage. Insurers are therefore working to spread risk through joint underwriting and strengthen assessment frameworks that account for complex risks.

According to the insurance industry on November 8, Samsung Re, the Singapore-based reinsurance subsidiary of Samsung Fire & Marine Insurance, is participating in efforts to establish a joint insurance framework for data centers in Asia. The initiative, announced by the Monetary Authority of Singapore (MAS) early this month, also involves global reinsurance broker Gallagher Re, reinsurer SCOR, Mitsui Sumitomo Insurance (MSIG), and the Cyber Security Association of Singapore (CASL). The participating organizations have signed a memorandum of understanding (MOU). They plan to initially provide $200 million in underwriting capacity and expand it in the future.

Insurers are moving to establish a joint underwriting framework because of concerns that risks associated with data centers could exceed the underwriting capacity of the existing insurance market. At the Singapore International Reinsurance Conference on November 2, SCOR CEO Thierry Léger said, "The insurance industry can currently provide only about $15 billion in coverage for a single risk, while it has about $70 billion in surplus capital." He explained, "This means the industry lacks the capacity to assess the risks of new industries."

Léger also cited a warning from Anthropic, the operator of the AI model Claude. In a recent filing with the U.S. Securities and Exchange Commission (SEC) for its initial public offering (IPO), Anthropic stated, "In the event of a major AI-related incident, the scale of the damage could be so great that individual insurers, as well as the insurance industry as a whole, may not have sufficient funds or expertise to manage it."

Within the industry, there is a growing trend to assess data center risks not as risks associated with individual buildings, but as risks involving interconnected combinations of technologies. This is because grid connection facilities, battery storage systems, and power generation and cooling equipment are all interconnected. According to a study by Uptime Institute, power disruptions accounted for the largest share of data center outages in the previous year, at 45%, followed by cooling system failures (14%), network failures (11%), and IT system failures (9%). An insurance industry official said, "When calculating the estimated maximum loss, we need to analyze power, cooling, and cyber risks comprehensively." The official added, "We also need to consider the recovery period after an incident and losses resulting from business interruption."

Some have also argued that insurers should spread data center risks through reinsurance. A financial industry official said, "The high cost of equipment at AI data centers is a problem, but the bigger concern is that multiple risks are concentrated in one place." The official added, "Because insurance policies involving multiple companies are interconnected, a single incident could trigger claims from many parties at the same time." The official continued, "There is talk that political issues in the United States could stall data center construction, but AI infrastructure is part of a struggle for hegemony among major powers, so investment will not stop." The official added, "Projects may slow somewhat, but demand for data centers is expected to continue. Insurers therefore need to strengthen their risk assessment capabilities and establish frameworks that allow them to underwrite risks jointly and spread them through reinsurance."

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