With global digital infrastructure investment expected to surpass $1 trillion this decade and hyperscaler spending projected to exceed $260 billion in 2025, data center developers are racing to deliver capacity.
Yet as these projects grow larger and more complex, traditional insurance frameworks are yet to keep pace, opening the door to parametric insurance and other alternative risk transfer solutions.
According to Paul Brown (pictured), managing partner at The Baldwin Group, these emerging structures are increasingly critical to making data center projects financeable and operationally resilient.
“Insurance has historically been treated as an 11th-hour decision,” Brown said. “People know they’ll need it, but the attitude is often, ‘Let’s deal with it when it becomes urgent.’
With these converged infrastructures… insurance is left to the 11th hour, it creates unnecessary complexity and can lead to avoidable crises.”
Modern data centers are no longer purely real estate or technology assets. Instead, they combine high-density computing, advanced cooling systems and, increasingly, dedicated power generation. This evolution has created exposures that do not fit neatly within traditional construction or property insurance policies, said Brown.
Facilities now routinely incorporate high-voltage electrical equipment, battery storage and even onsite or “behind-the-meter” power generation. In some cases, developers are repurposing turbines from legacy energy sectors or deploying mobile power assets to meet urgent demand for electricity.
The result is a new class of risk, particularly around power reliability. “Major tech tenants, like Google or Meta, require extremely high uptime, often 99.99% or 99.999%,” Brown said. “Power interruptions must be minimal, and voltage must remain highly consistent.
“Even brief outages, say 15 seconds, can trigger significant penalties. These penalties flow across multiple parties: the tenant, the building owner, and increasingly the power provider.”
Traditional business interruption (BI) insurance has limitations in this context. Policies often include waiting periods (typically 30 days) before coverage is triggered, making them ineffective for short-duration outages that nonetheless carry significant financial consequences. This gap has driven the growth of parametric insurance and service level agreement (SLA) coverage.
Unlike traditional indemnity-based policies, parametric insurance pays out based on predefined triggers, such as a drop in voltage or a specified period of downtime, rather than assessed losses. SLA insurance similarly addresses contractual penalties tied to performance metrics.
These products are designed to cover “micro-interruptions,” said Brown: “Instead of traditional BI policies with 30-day waiting periods, these products respond to very short-duration events. They help cover revenue impacts like rent credits or energy credits triggered by SLA breaches.”
Importantly, these structures are also supporting project financing. Lenders and counterparties increasingly require assurance that contractual obligations are backed by insurance or similar credit support mechanisms.
Beyond operational risks, insurers are also addressing financial exposures, including offtaker credit risk. While many data center tenants are highly rated technology companies, others fall below top-tier credit levels, creating additional uncertainty for investors.
Here, bespoke insurance structures are emerging. Policies can be tailored to specific contractual arrangements, covering defined payment obligations or performance thresholds. This level of customization marks a departure from more standardized property and liability policies.
“The beauty of parametric solutions is their flexibility,” Brown said. “You can design coverage around the exact parameters of a transaction: what happens, when it happens, and what the financial impact is.”
Across all these trends, a consistent theme is the need for earlier engagement with insurance and risk specialists.
According to Brown, data center projects typically span three to six years from planning to operation, with risks evolving at each stage. Decisions made during site selection, design and engineering can significantly influence insurance availability, pricing and terms.
“Too often, the conversation focuses late on cost rather than what can be done during development to improve insurability, he said. “As these projects evolve in scale, complexity, and geography, moving insurance earlier into the process and treating it as part of risk management is critical.”
As the sector continues its rapid expansion, stakeholders are increasingly recognizing insurance not just as a safeguard, but as a strategic tool.
“Done right, it can stabilize returns, unlock financing and support growth,” Brown added. “That’s why these alternative solutions are gaining so much traction.”
