- Half of all new U.S. data centers are now in high-risk, disaster-prone states.
- 29-34% are located in earthquake, tornado or hurricane hotspots.
- Data centers are being moved to these states due to other constraints
New insurance research claims that more than half (56%) of data center projects planned or under construction in the United States are located in high-risk states, many of which are prone to hurricanes, winter storms and earthquakes.
According to data from MS Amlin, which examined 670 U.S. data center projects, these at-risk projects represent nearly $800 billion in investment.
Insurers are particularly concerned about the high concentration of projects moving to southern states, where land, tax incentives and electricity availability are generally more attractive.
Tornadoes, hail, winds and thunderstorms
It appears that the greatest concern comes from strong convective storms (SCS). According to this insurance category, tornadoes, hail, damaging winds and severe thunderstorms all pose a risk to data center construction. More than half (51%) of planned facilities are located in high-risk SCS regions.
Existing data centers in these regions are worth around $20 billion, but the value of planned infrastructure would be around 40 times that, the report found.
And these concerns are not unfounded, with SCS events generating approximately $52 billion in insured losses in the United States last year.
But other weather factors also come into play, with more than a quarter (27%) of planned facilities located where there is high exposure to winter storms, more than a fifth (21%) in states at high risk of hurricanes, and 3% in earthquake-prone areas.
“When assets of this scale cluster in risk-prone regions, the potential severity of losses from a single storm can increase very quickly,” wrote Martin Burke, chief underwriting officer.
The company also referenced research from Swiss Re, revealing that insured losses due to SCS have increased by around 8% per year since 2008.
The data also agrees with separate research from Texas A&M University, which found that 34% of 2,660 U.S. data centers examined were located in hurricane hotspots, 30% in tornado hotspots and 29% in earthquake hotspots. Many were also in regions prone to wildfires and flooding.
Balancing environmental threats with energy availability and more
However, insuring projects is not the only consideration hyperscalers and investors need to make, because while AI was previously limited by its capabilities, the biggest challenges now come from capacity building.
The industry has shifted its priorities to available grid capacity and cheap land to accommodate demand, with many projects already facing years of delays due to poor energy preparation.
Despite the concentration of investment in high-risk areas, Burke sees this as a “growth opportunity” for the insurance sector, where “risks need to be properly managed and understood”.
However, going forward, the report suggests that insurers themselves may soon become a constraint on AI development, increasing the number of factors AI companies must balance.
The Texas A&M University paper identified a number of locations in northern Minnesota and Michigan’s Upper Peninsula considered low risk.
“It is imperative to thoroughly assess and improve the resilience of data centers to these climate-induced risks to ensure the continuity and reliability of the AI-based services on which our modern society increasingly depends,” the researchers conclude.
As for insurers, Burke urges underwriters to “adopt more advanced methods to manage aggregation risk.”
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