The Three Pillars of Digital Infrastructure Risk Management

Fueled by explosive growth in data consumption, cloud computing, artificial intelligence, and cutting-edge technologies, demand for data centers is surging at an unprecedented pace. Trillions of dollars are projected to be invested globally over the next five years to build and sustain this critical backbone of the economy. This massive opportunity represents a gold rush for data center owners/operators, but it also places them within a complex and interconnected ecosystem where evolving risks demand more than traditional risk management approaches.

In today’s environment, speed to market is not just a competitive advantage but an absolute necessity. Owners/operators must rapidly deploy new capacity to meet insatiable demand while simultaneously navigating intricate construction challenges, securing reliable power, managing supply chain disruptions, and addressing regulatory and environmental pressures. Delays or mishaps can result in lost revenue, diminished investor confidence, and lasting reputational damage.

Successfully navigating this landscape and capitalizing on opportunities requires integrated, forward-looking strategies intended to accelerate growth, optimize capital deployment, and manage the interconnected risks inherent in the digital infrastructure ecosystem. This approach rests on three main pillars: comprehensive risk management, capital enablement, and resilience-building strategies that span the asset lifecycle.

Building resilience throughout a complex and interconnected digital ecosystem

Data centers do not operate in isolation. They are part of a vast and complex network that includes construction partners, energy and communications providers, cloud and hosting services, enabling technologies, capital sources, and regulatory frameworks. This intricate web requires a holistic approach to risk and capital management. For example, delays in power interconnection agreements or supply chain bottlenecks can stall construction and impact project timelines. Cyber vulnerabilities may cascade into operational disruptions, threatening uptime and reputation. Viewing these risks in isolation misses critical interdependencies and the opportunity to build resilience across the entire asset lifecycle.

End-to-end visibility across the digital infrastructure ecosystem is essential to future-proof investments and optimize performance. Understanding these interconnected risks enables owners and developers to anticipate vulnerabilities and implement integrated mitigation strategies that support overall resiliency and sustainable growth.

Going beyond core risk management

Protecting investments and unlocking growth opportunities requires tailored risk management and capital enablement strategies that span acquisition and development, through operations, and ongoing management.

Traditional risk management remains foundational throughout the lifecycle of data centers. Comprehensive insurance programs — including builders’ risk insurance, property and casualty coverage, and contractor-controlled insurance programs (CCIPs) — are integral to protecting physical assets and liabilities during construction and operation. But the extent of potential losses requires owners/developers to be laser-focused on developing more robust insurance programs than ever before.

As data center campuses grow in size and value, owner-controlled insurance programs (OCIPs) can enable better cost control and help accelerate growth. OCIPs provide owners/operators greater control over insurance coverage, enabling them to reduce frictional costs, gain flexibility across multiple projects, and better align insurance programs with rapidly expanding needs.

In regions prone to natural catastrophes, such as tornadoes or convective storms, it may become more challenging to secure sufficient capacity through traditional property insurance markets, especially for campus clusters holding billions of dollars in value. To address these challenges and enhance financial resilience, owners/operators can explore alternative risk solutions, including parametric insurance products that provide rapid, predefined payouts, enabling quicker recovery and financial resilience. These products can complement traditional coverage, addressing gaps for emerging risks and helping owners/operators safeguard critical infrastructure and maintain operational continuity in a rapidly changing environment.

Considering the major investments required, having the right leadership is fundamental to the success of data centers. A comprehensive and competitive directors and officers liability (D&O) insurance program can help attract and retain the talent necessary to steer data center companies through rapid growth and navigate opportunities, including investment pursuits and public offerings. To remain effective, D&O programs must evolve alongside the company’s growth trajectory, addressing new risks, such as reputational and securities challenges inherent in high-stakes decision-making.

Unlocking growth through capital optimization

The power-intensive nature of data centers means that demand for energy is increasing rapidly. To secure a reliable, long-term power supply, data centers typically enter into complex agreements with utilities and power producers, which often require performance guarantees to protect capital investments in infrastructure upgrades necessary to provide the needed power. Similar guarantees are also standard for securing long-term power purchase agreements (PPAs) in order to mitigate the risk of contract default.

Letters of credit (LOCs) have traditionally served as the preferred financial instrument for these guarantees due to their perceived security, liquidity, and credibility. However, LOCs typically require substantial collateral deposits, often tying up hundreds of millions of dollars in cash or collateral that could otherwise be invested in new growth initiatives.

Surety guarantees offer a compelling alternative, providing comparable liquidity without collateral requirements, freeing up capital while delivering the financial security sought by utilities and power providers. Surety 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 resiliency in a complex risk landscape

Long-term success depends on owners’/operators’ ability to identify evolving risks and build resilient organizations capable of withstanding current and future challenges. Resiliency efforts should adopt a holistic approach spanning the entire asset lifecycle — from planning and construction to operations and ongoing management.

These efforts must address a broad spectrum of risks, including property exposures, cyber threats, operational vulnerabilities, and reputational challenges. When effectively implemented, resiliency can become a strategic business enabler, attracting and securing needed capital injections, including from private equity funds looking to protect investment returns.

Ultimately, building a resilient organization allows data center owners/operators to reduce friction in their growth journeys, preserve capital, and maintain stakeholder confidence. By anticipating, quantifying, and managing evolving risks within the digital infrastructure ecosystem, resiliency becomes a foundational pillar, supporting 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 that recognizes the interdependencies among data centers, construction entities, energy providers, technology enablers, and capital sources, and addresses them holistically.
• Focus on capital enablement tools, such as surety guarantees, to unlock growth capital and reduce friction in project financing.
• Continuously evaluate and optimize insurance program structures, including exploring innovative solutions that could better support speed to market and operational resiliency.
• Collaborate closely with energy partners to anticipate and mitigate interconnection risks and secure stable, long-term power.
• Regularly review financial lines coverage to protect leadership and align with evolving growth strategies.

The rapid expansion of the digital infrastructure ecosystem brings both immense opportunity and complex risks that could derail construction and operations. Navigating this landscape requires a comprehensive, forward-looking approach that integrates risk management, capital enablement, and resilience-building across the entire asset lifecycle. &