- Half of all new US data centers are now in high-risk, disaster-prone states
- Between 29% and 34% are in critical earthquake, tornado or hurricane zones.
- Data centers are being brought to those states as a result of other limitations.
New insurance research has stated that more than half (56%) of data center projects planned or under construction in the US are located in high-risk states, many of them prone to hurricanes, winter storms and earthquakes.
According to data from MS Amlin, which examined 670 data center plans in the United States, these projects at risk represent almost $800 billion of investment.
Insurers are specifically concerned about the high concentration of projects moving to southern states, where land, tax incentives and energy availability are generally more attractive.
Tornadoes, hail, winds and thunderstorms
It appears that the biggest concern comes from severe convective storms (SCS). Under this insurance category, tornadoes, hail, damaging winds, and severe thunderstorms pose a risk to data center construction. More than half (51%) of the planned facilities are located in high-risk SCS regions.
Existing data centers in these regions represent around $20 billion in value, but planned infrastructure would be worth around 40 times more, the report reveals.
And the concerns are not unfounded: SCS events generated about $52 billion in insured losses across the United States last year.
But other climate factors also play a role: More than a quarter (27%) of planned facilities are located where there is high exposure to winter storms, more than a fifth (21%) in high-risk hurricane states, and 3% in earthquake-prone areas.
“When assets of this scale are clustered in hazard-prone regions, the potential severity of losses from a single storm can increase very quickly,” wrote underwriting director Martin Burke.
The company also referred to Swiss Re research, which reveals that SCS insured losses have increased around 8% annually since 2008.
The data also aligns with separate research from Texas A&M University, which found that 34% of the 2,660 US data centers they examined were located in hurricane hotspots, 30% in tornado hotspots, and 29% in earthquake hotspots. Many were also in regions susceptible to wildfires and flooding.
Balancing environmental threats with energy availability and more
However, securing projects is not the only consideration hyperscalers and investors need to take into account, because while AI was previously limited by capacity, the biggest challenges now come from building capacity.
The industry has shifted its priorities towards available grid capacity and cheap land to scale with demand, and many projects are already facing years of delays due to poor energy preparedness.
Despite concentrated investments in high-risk areas, Burke sees this as a “growth opportunity” for the insurance sector, where “risks must be properly managed and understood.”
Looking ahead, however, the report suggests how insurers themselves could soon become a constraint on the expansion of AI, adding to 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 comprehensively assess and improve the resilience of data centers to these climate-induced risks to ensure the continuity and reliability of the AI-powered services on which our modern society increasingly depends,” the researchers concluded.
As for insurers, Burke urges underwriters to “embrace more advanced ways of managing aggregation risk.”
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