For the past two years, rising hosting costs have typically been attributed to “AI hardware costs,” including expensive GPUs, higher power contracts, and increased rack densities. Those factors are real. But ask a smaller provider that has recently renewed its property and liability insurance, and a different story emerges: insurance costs.
The market is accelerating rapidly. S&P Global Ratings forecasts that data center insurance costs will reach $10 billion in 2026, or about double the global aviation insurance market. Swiss Re estimates that global data center insurance costs will increase to $24.2 billion by 2030.
And insurance companies aren’t just collecting premiums; they’re effectively redrawing the standards for how AI-era data centers are built, operated, and priced.
Global data center insurance premiums
Current vs. 2030 projection
Hosts often pass these costs on as added fees or gradual increases to monthly VPS rates to avoid directly naming the cause. Regardless of the label, a significant share of those costs is tied to the host’s underlying risk profile.
A Hardening Market in a Niche That Used to Be Boring
Data center insurance was once a relatively stable corner of the commercial property market. A 5-MW colocation facility was typically treated as just another tenant in a high-quality industrial building. Underwriting was straightforward, premiums were predictable, and insurers saw little financial risk.
But with the rise of AI, underwriters began to see very different kinds of data centers: multibillion-dollar campuses packed with tens of thousands of GPUs, liquid cooling systems, and large lithium-ion battery installations that had not existed five years before. The risks became larger, more complex, and much harder to measure.
Premiums for data center cyber insurance increased 25% to 40% a year between 2022 and 2025, according to a 2026 Hotaling Insurance Services report.
Insurance rates have begun to level off, but only for facilities with strong cybersecurity controls in place, including multifactor authentication for privileged accounts, separation between industrial control systems and IT networks, and fully redundant backup systems. But premiums continue to rise sharply for facilities that don’t meet those standards.
Meanwhile, insurers face new risks from the growing overlap between industrial control systems and traditional IT infrastructure. Water damage in a data center used to mean a leaking roof. Today, it could mean a liquid-cooling system dumping coolant directly onto GPU racks worth tens of thousands of dollars each.
Liquid Cooling and Lithium Are Now Underwriting Categories
Consequently, the market for liquid cooling is expected to grow at a 22.65% compound annual rate over the next five years, according to Mordor Intelligence. In effect, liquid cooling is no longer an option for equipment requiring more than 20 to 30 kW of power.
This represents a new category of physical risk for which insurers must develop appropriate underwriting procedures, including coverage for failures, leaks, contamination, and freeze events with no record of acceptable actuarial experience.
The second wave of development involves high-density lithium-ion battery systems for which economic justification is strong, but which continue to raise concern among insurers. Recent analyses of data center fires have identified “thermal runaway” — in which a single overheating cell ignites a cascading reaction — as one of the most rapidly growing forms of physical risk in the industry.
The Insurers Are Drawing the Standards Now
As a result, insurers have taken a hard line. Facilities that fail to meet carrier requirements for lithium-battery fire suppression often can’t obtain property insurance at all. In practice, insurers are imposing construction and operational standards for an industry where formal building codes have yet to catch up.
This approach to loss control mirrors existing standards for high-density commercial buildings. In both cases, risk is managed through proven methods for evaluating and controlling potential hazards.
“We’ve introduced…a seamless insurance solution that takes you from construction through operational without any handovers,” George Haitsch, North American technology, media, and telecommunication leader at broker Willis, told Insurance Journal.
Haitsch described the new product, Digital Infrastructure Protector, as “a checklist to think through in a comprehensive way all the issues that this sort of hyperscale project can create.”
Checklists are how insurers reshape an industry. The eight-component approach Willis is using to underwrite hyperscale campuses effectively constitutes a de facto standard of safety. Facilities that meet this standard receive capacity. Those that don’t receive excessive coverage with respect to high-risk perils or experience a polite refusal to provide coverage for the account during the current cycle.
Why It Hits Smaller Hosts Hardest
Hyperscalers may consider a double-digit increase in cyber insurance costs as relatively insignificant on a $1 billion project. But for a regional colocation provider or a mid-sized managed cloud operator, those increases can have a major impact on operating costs and service pricing.
Insurance offers little flexibility: Either the premiums are paid, or the facility can’t operate.
Many providers eventually pass the costs on to customers. But customers are keenly price-sensitive and often resist any significant rate increases.
Smaller hosting companies are facing the same pressures they experienced after the recent cPanel and Plesk licensing price hikes when they either absorbed part of the added cost themselves or accepted lower margins — while hoping conditions will improve before the next renewal cycle.
This is unlikely. Insurance carriers remain concerned about geopolitical risk, including recent attacks on AWS facilities in the Middle East, the impacts of climate change, and increasingly prescriptive regulatory requirements.
Facilities in Texas typically pay 15% to 30% higher premiumns than comparable Midwest sites, reflecting exposure to ERCOT constraints, hail, and hurricanes.
As a result, the pressure to consolidate is growing. Facilities that can demonstrate full compliance and can absorb the added cost of advanced fire suppression systems necessary for a project this size are still in operation.
Those that can’t won’t be able to secure sufficient coverage — and in some cases no coverage at all. And that isn’t due to a particular law or a major insurer leaving the market. It’s the result of a gradual tightening of underwriting standards for an industry that was never designed to fit traditional insurance models.
What Hosts Are Watching
The big questions at hosting strategy meetings today are simple: How vulnerable are we because our facilities were not upgraded for liquid cooling? Where do we stand in terms of the current cybersecurity standards insurers require? And can we renew our coverage without spending on unexpected retrofit projects?
These aren’t existential threats for hyperscalers. But how well smaller providers manage these risks will increasingly determine whether they stay independent through the end of 2026.
News reports have been slow to recognize this shift because the insurance industry moves cautiously and because rising insurance costs are often hidden in broader service expenses. But the overriding trend is clear: Insurers are now the ones setting the pricing structure for hosting services — and that fact is steadily driving costs higher.
