MediumVII Reinsurance & Specialty Risk11 November 2026, Wednesday
Howden finds most data centre outages fall outside insurance cover
A study by broker Howden, announced on 11 November, finds that half of all data centres suffered a significant outage over the past three years. Most of the roughly $2 billion annual loss involves no physical damage, so it falls outside conventional business interruption cover.
Howden puts the cost of each outage at between $500,000 and $1 million, implying global losses of about $2 billion a year. According to the firm's main report of 28 September, 45% of major outages stem from power and uninterruptible power supply failures. Cooling accounts for 14%, networks for 11% and IT systems for 9%. Conventional business interruption cover, which pays for lost income when operations stop, only responds if there is physical damage.
The root cause lies in the grid. In the US, data centre power demand has grown 19% a year since 2000, while grid capacity has grown 2% a year. Data centres' share of US grid capacity rose fifty-fold, from 0.1% in 2000 to 5% in 2025. Howden proposes filling the gap with parametric cover tied to service level agreements and with non-damage business interruption products. Parametric cover pays out once a pre-agreed threshold is crossed, without waiting for a loss assessment.
The same report says up to five data centres in the UAE and Bahrain were struck by Iranian drones in 2026, the first known deliberate wartime targeting of commercial data centres. Major lawsuits and arbitrations involving such facilities rose from 4 in 2021 to 14 in the first half of 2026.
Talay assessment
Bottom line
Howden's data show that the real gap in data centre risk lies as much in how cover is defined as in policy limits: most of the roughly $2 billion annual loss trips over the physical damage requirement. With 45% of outages caused by power failures and grid growth far behind demand, the gap will not close on its own. The most likely path is for outage risk to become a separate parametric product class rather than being absorbed into conventional property policies.
Likely effects
- Data centre operatorsNegative1–6 months
Outage losses without physical damage stay on the balance sheet; operators will have to hedge penalty risk under service level agreements separately, with parametric products.
- Reinsurance and parametric marketPositive6 months+
Roughly $2 billion a year of unprotected losses opens a new premium pool for parametric insurers and capital markets.
- War coverNegativeWeeks
Drone strikes in the UAE and Bahrain have pulled data centres into the war exclusion debate; cover terms for Gulf facilities may tighten.
Possibilities, ranked
- 1Parametric products spread55%
Outage risk grows as a separate product through parametric cover tied to service level agreements, while conventional policies stay unchanged.
Watch: A major hyperscaler announcing the purchase of parametric outage cover
- 2The gap persists30%
Pricing data remain thin, and most outage losses stay on operators' balance sheets.
Watch: Share of non-damage cover in early-2027 data centre market reports from Howden or other brokers
- 3Conventional policies widen15%
Large property insurers add non-damage business interruption to standard policies for an extra premium.
Watch: A major property insurer adding a non-damage BI clause to its standard data centre programme
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Annual outage losses▲ ~$2bn
- Share from power failure▲ 45%