AI data center boom ‘stress tests’ insurers as private capital soars

AI data centers are becoming a “stress test” for insurers as rapid technological advancements and the use of increasingly complex financial structures present a unique set of challenges and opportunities for the sector.

Global spending on data centers could reach $7 trillion by 2030, according to McKinsey, and much of that spending can no longer come solely from hyperscalers. Instead, Big Tech is increasingly tapping private equity, private credit and using debt to finance the capital-intensive build-out of the facilities.

Private infrastructure data center deals were consistently above the $10 billion mark last year, according to data from Preqin. The largest deal amounted to $40 billion, with Nvidia, Microsoft, BlackRock and Elon Musk’s xAI forming part of a consortium of investors to buy Aligned Data Centers.

The fact that so much money is tied up in building, constructing, and running data centers has been a “real stress test” over the last four to five years for the major insurance companies, Tom Harper, data center leader at insurance broker Gallagher, told CNBC.

“When you put $10 to $20 billion plus in a single location, it creates capacity issues in the marketplace. The marketplace has always had an appetite for these risks because they are such high-quality builds. They’ve got cutting-edge technology, they’re AA plus plus construction locations, but the capacity — the ability to provide the insurance capacity at these locations — has been tough.”

It was nearly impossible to reasonably insure a $20 billion campus in 2023, according to Harper. In 2026, however, it’s become a weekly conversation.

Estimated spending on AI data centers has been referred to as the biggest peacetime investment project in history. Rajat Rana, partner at Quinn Emanuel Urquhart & Sullivan, told CNBC he would take it a step further and stress that this is the “largest peacetime investment project in human history, which is financed largely off balance sheet.”

Rana, who worked on structured finance litigation in the wake of the housing crisis triggered by the 2008 Financial Crash, said tracking developments in AI data center financing feels like “deja vu.”

“We’re talking about trillions of dollars, and almost going back to the same cycle where there’s almost no transparency about the financing structures — the scale is astronomical,” he said.

The AI boom is not only driving a rush in demand for the facilities, it’s also spurring rapid advancements in power generation and chips — the critical tech that the data centers house. The advancements and huge sums of money flowing into the sector pose both risks and rewards for insurers and lenders.