The rapid and massive expansion of digital infrastructure requires an evolved approach to risk management.
Fueled by the explosive growth in data consumption, cloud computing, artificial intelligence and advanced technologies, the demand for data centers is increasing at an unprecedented rate. Billions of dollars are expected to be invested globally over the next five years to build and maintain this essential backbone of the economy. This massive opportunity represents a gold rush for data center owners/operators, but it also places them in a complex, interconnected ecosystem where evolving risks demand more than traditional risk management approaches.
In today’s environment, speed to market is not only a competitive advantage but an absolute necessity. Owner/operators must rapidly deploy new capacity to meet insatiable demand while simultaneously addressing complex construction challenges, ensuring reliable power, managing supply chain disruptions, and navigating regulatory and environmental pressures. Delays or incidents can result in lost revenue, loss of investor confidence and lasting reputational damage.
Successfully navigating this landscape and capitalizing on opportunities requires integrated, forward-looking strategies designed to accelerate growth, optimize capital deployment, and manage the interconnected risks inherent in the digital infrastructure ecosystem. This approach is based on three main pillars: comprehensive risk management, capital activation and resilience-building strategies that cover the entire asset lifecycle.
Building resilience within a complex and interconnected digital ecosystem
Data centers do not operate in isolation. They are part of a large and complex network that includes construction partners, energy and communications providers, cloud and hosting services, enabling technologies, capital sources and regulatory frameworks. This complex set requires a holistic approach to risk and capital management. For example, delays in electricity interconnection agreements or supply chain bottlenecks can stall construction and impact project timelines. Cyber vulnerabilities can lead to operational disruptions, threatening availability and reputation. Viewing these risks in isolation ignores critical interdependencies and the opportunity to build resilience throughout the asset lifecycle.
End-to-end visibility into the digital infrastructure ecosystem is essential to future-proof investments and optimize performance. Understanding these interconnected risks allows owners and developers to anticipate vulnerabilities and implement integrated mitigation strategies that support overall resilience and sustainable growth.
Go beyond basic risk management
Protecting investments and unlocking growth opportunities requires tailored risk management and capital activation strategies that span acquisition and development, through operations and ongoing management.
Traditional risk management remains fundamental throughout the data center lifecycle. Comprehensive insurance programs – including builder’s risk insurance, property and casualty coverage and Contractor Controlled Insurance Programs (CCIP) – are integral to protecting physical assets and liabilities during construction and operation. But the scale of potential losses requires owners/developers to focus on developing more robust insurance programs than ever before.
As data center campuses increase in size and value, owner-controlled insurance programs (OCIP) can provide greater cost control and help accelerate growth. OCIPs provide owner/operators with greater control over insurance coverage, allowing them to reduce friction costs, gain flexibility across multiple projects, and better align insurance programs with rapidly growing needs.
In regions prone to natural disasters, such as tornadoes or convective storms, it may become more difficult to secure sufficient capacity through traditional property insurance markets, particularly for campus clusters holding billions of dollars in value. To address these challenges and improve financial resilience, owner/operators can explore alternative risk solutions, including parametric insurance products that provide rapid, predefined payouts, enabling faster recovery and financial resilience. These products can complement traditional coverage, filling gaps in the face of emerging risks and helping owners/operators protect critical infrastructure and maintain operational continuity in a rapidly changing environment.
Given the major investments required, having the right leadership is critical to data center success. A comprehensive and competitive directors and officers (D&O) liability insurance program can help attract and retain the talent needed to guide data center companies through rapid growth and seize opportunities, including investment searches and public offerings. To remain effective, D&O programs must evolve alongside the company’s growth trajectory, taking into account new risks, such as reputational and securities concerns inherent in high-stakes decision-making.
Unlocking Growth Through Capital Optimization
The energy-intensive nature of data centers means that energy demand is increasing rapidly. To ensure reliable long-term power, data centers typically enter into complex agreements with utilities and power producers, who often require performance guarantees to protect capital investments in infrastructure upgrades needed to provide the necessary power. Similar guarantees are also standard to secure long-term power purchase agreements (PPAs) to mitigate the risk of payment default.
Letters of credit (LOC) are traditionally the preferred financial instrument for these guarantees due to their security, liquidity and credibility. However, lines of credit typically require large security deposits, often tying up hundreds of millions of dollars in cash or collateral that could otherwise be invested in new growth initiatives.
Bond guarantees offer an attractive alternative, providing comparable liquidity without collateral requirements, freeing up capital while providing the financial security sought by utilities and power providers. Bond guarantees issued by an insurance company can help data center owners/operators unlock hundreds of millions of dollars in capital that can be redeployed to accelerate growth and capitalize on emerging opportunities.
Building resilience in a complex risk landscape
Long-term success depends on the ability of owners/operators to identify changing risks and build resilient organizations that can withstand current and future challenges. Resilience efforts must take a holistic approach covering the entire asset lifecycle, from planning and construction to operation and ongoing management.
These efforts must address a broad range of risks, including asset risks, cyber threats, operational vulnerabilities and reputational concerns. When implemented effectively, resilience can become a strategic enabler for businesses, attracting and securing needed capital injections, including from private equity funds seeking to protect investment returns.
Ultimately, building a resilient organization allows data center owners/operators to reduce friction in their growth journey, preserve capital, and maintain stakeholder trust. By anticipating, quantifying and managing evolving risks within the digital infrastructure ecosystem, resilience becomes a fundamental pillar, driving speed to market, operational excellence and sustainable business success.
5 strategic priorities for risk managers
As demand for data centers continues to grow, risk managers should consider the following strategic priorities to manage risks and capitalize on opportunities, including:
- Adopt an ecosystem-wide risk management mindset which recognizes the interdependencies between data centers, construction entities, energy providers, technology enablers and capital sources, and addresses them holistically.
- Focus on capital activation toolssuch as bond guarantees, to unlock growth capital and reduce friction in project financing.
- Continually evaluate and optimize insurance program structuresincluding exploring innovative solutions that could better support speed to market and operational resilience.
- Work closely with energy partners to anticipate and mitigate interconnection risks and guarantee stable, long-term power supply.
- Regularly review the coverage of financial lines to protect leadership and align with evolving growth strategies.
The rapid expansion of the digital infrastructure ecosystem brings both immense opportunities and complex risks that could derail construction and operations. Navigating this landscape requires a holistic, forward-looking approach that integrates risk management, capital activation, and building resilience throughout the asset lifecycle. &