How to insure AI data centres in Canada

Fuelled by the boom in artificial intelligence, data centres in Canada are on the rise, and represent a new business opportunity for the Canadian property and casualty industry.

But the risks posed are significant and will likely require brokers and insurers to come up with subscription policy solutions, says a Marsh Canada executive.   

“$300 million is not a large project anymore,” says Chris Johnson, Marsh’s communications, media and technology industry leader for Canada. “We’re seeing ones in the $1 billion-plus range in Canada. So, to find a single carrier who wants to go on risk for such a large project is very rare.”

Rise of data centres

A recently released report from Marsh, “Unlocking the digital infrastructure opportunity: Protecting capital and enabling growth,” says an estimated US$3 trillion will be invested in digital infrastructure worldwide by 2030.

“Probably about three-and-a-half to four percent of that will show up in Canada over the next five years,” Johnson tells Canadian Underwriter. Although that number may sound small, it equates to US$105 billion to US$120 billion.

Applying AI pressures

Most of that investment, says Johnson, is in response to leveraging gen AI and eventually agentic AI in all facets of commerce, communications, and social interactions.

Most recently, Bell Canada announced on Mar. 16 it would invest $1.7 billion in a 300 MW purpose-built AI data centre on the outskirts of Regina, Saskatchewan. A significant portion of that facility’s power, it says, will be dedicated to “ensuring that government agencies, researchers and enterprises in Canada can access top-tier AI power while guaranteeing their data remains within Canada, meeting strict chain-of-custody and residency requirements.”

The topic of data sovereignty is heating up, Johnson says. Canadians have traditionally benefited from having direct and short distance communications with US hyperscalers. But Johnson says people are realizing that “having Canadian-based data and processing reside physically in Canada will be an increasing trend moving forward.”

Doubling data capacity

Depending on whether you count older and smaller centres, explains Johnson, Canada currently has anywhere from 250 to 300 data centres. “Our expectation is we’ll likely [hit] 450 to 500 over the next five years.”

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An estimated two dozen new builds will be hyperscale supports of 100 MW or larger. The rest will be in smaller spaces as individuals and businesses become closer to their data and to controlling who has access to and can leverage it.

According to the Marsh report, Canada presents unique advantages for data centre development, including abundant power supply, lower cooling costs due to climate, strong government support and subsidies, and competitive insurance rates. 

Insuring multi-layered coverage

How will these data centres be insured?

To arrange coverage for such large-scale projects, brokers typically rely on subscription policy offerings. Typically, when building up a tower solution, multiple carriers across lines sign on for a portion of the total limits required. It is the job of the broker to build out a competitive program that offers coverage for all phases so a project can move forward.

And what are the risks?

The most expensive and inflammatory risks are contractual: for example, the ability to maintain service level agreements (SLAs) with tenants. Startup delays, which rely not only on funding but on the preliminary provision of roads, electricity, and access to skilled labour, for example, can result in significant penalties. Downtime once a centre is online can also prove disastrous.

Although there are few losses to reference, Johnson cites the major fire in South Korea last fall. Sparked by a lithium battery explosion during maintenance, the resulting fire produced a thermal runway that made it difficult to contain the blaze. More than 600 servers were shut down, damaging 96 of the 647 government information systems housed at the centre. Almost 400 battery packs were also extracted as a safety measure.

“There is an absolute real risk in regard to what I’ll call ‘Black Swan’ events,” says Johnson. “When something goes wrong with a data centre, it can become catastrophic at a level you haven’t seen.”

Those risks, however, are rare. Historically, compliance across the board is very high over time.

“So, if you have appetite,” says Johnson, “and you can get comfortable with things like the physical cost of the property, the potential cyber risk, the contracture risk, and parametric solutions, there’s a great opportunity for everyone to work well together and to collaborate successfully.”