- Half of all new US data centers are now in high-risk, disaster-prone states
- 29-34% are located in earthquake, tornado or hurricane hotspots
- Data centers are being driven to those states as a result of other constraints
New insurance research has claimed more than half (56%) of the US’ planned or under-construction data center projects are located in high-risk states, with many prone to hurricanes, winter storms and earthquakes.
According to the data from MS Amlin, which examined 670 US data center plans, these at-risk projects account for nearly $800 billion of investment.
Insurers are specifically worried about the high concentration of projects being shifted to the southern states, where land, tax incentives and power availability are generally more attractive.
Tornadoes, hail, winds and thunderstorms
It seems the biggest concern comes from severe convective storms (SCS). Per this insurance category, tornadoes, hail, damaging winds and severe thunderstorms all pose a risk to data center buildouts. More than half (51%) of the planned facilities are located in high-risk SCS regions.
Existing data centers in these regions account for around $20 billion in value, but planned infrastructure would be worth around 40 times more, the report reveals.
And the concerns aren’t ungrounded, with SCS events generating around $52 billion in insured losses across the US last year.
But other weather factors are also at play, with more than a quarter (27%) of planned facilities located where there is high winter storm exposure, more than a fifth (21%) in states with high hurricane risks, and 3% in earthquake-prone areas.
“When assets of this scale cluster in hazard prone regions, the potential loss severity from a single storm event can rise very quickly,” Chief Underwriting Officer Martin Burke wrote.
The company also referenced Swiss Re research, revealing that insured losses from SCSs have grown 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 it examined were located in hurricane hot spots, 30% were in tornado hotspots, and 29% were in earthquake hotspots. Many were also in regions susceptible to wildfires and flooding.
Balancing environmental threats against energy availability and more
Insuring projects isn’t the only consideration that hyperscalers and investors have to make, though, because while AI was previously limited by capability, now the biggest challenges come from actually building capacity.
The industry has shifted its priorities to available grid capacity and cheap land in order to scale with demand, with many projects already facing years in delays due to poor energy readiness.
Despite concentrated investments in high-risk areas, Burke sees this as a “growth opportunity” for the insurance sector, where “the risks must be properly managed and understood.”
However, looking ahead, the report suggests how insurers themselves could soon become a constraint on AI expansion, adding to the number of factors AI companies must balance.
The Texas A&M University paper identified a number of locations across northern Minnesota and Michigan’s Upper Peninsula considered low-risk.
“It is imperative to thoroughly evaluate and enhance the resilience of data centers against these climate-induced risks to ensure the continuity and reliability of AI-driven services that our modern society increasingly depends upon,” the researchers concluded.
As for insurers, Burke urges underwriters to “adopt more advanced ways to manage aggregation risk.”
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