There’s an AI infrastructure spending spree happening, and commercial property insurer FM sees that as a challenge for the insurance industry to tackle.
“They’re building dozens of these things a year, and quite honestly, the capacity in the [insurance] marketplace, the knowledge of the market hasn’t been able to keep up,” according to FM CEO Malcolm Roberts. “If I’ve got a client base that’s saying, ‘How do I build this so it’s resilient, and I’ve got money to invest that capital to make it resilient?’…that’s my prime customer.”
Rhode Island-based FM insures about 1,100 data centers totaling $250 billion in value, and its engineers spend about 30,000 hours a year working with data center providers. FM recently launched a new virtual resource program called Intellium to help policyholders better understand and manage data center risks.
Roberts recently sat down with CFO Brew at the Riskworld conference in Chicago to talk about the opportunities and risks in data centers. He also discussed the growing threat of secondary perils (think: flooding and wildfires) and how FM is incentivizing organizations to better manage those risks.
What’s behind FM’s emphasis on data centers?
As I’m sure you and your readers know, when you hear the word AI, it’s not just some magic box. There’s a huge data center sitting somewhere powering this thing. More and more are coming to the US. [Data centers have] been in places like Virginia forever, but now more and more it’s being put in rural America…As we start going more and more out into the Midwest, into rural America, there’s more secondary peril exposure. It’s flood, wind, hail, all of those perils. Beyond data centers, we’re great at managing climate change perils. And…how does the data center need to stay up and running 24/7, 365 days a year? It’s power, and lots of it. I’m not sure even the business community, let alone the general public, realize the power demand of these things.
We’re seeing our clients go to data centers, they’re partnering with companies doing power, both fossil and renewables. We said, we’ve got expertise in all of those. This risk is changing. There’s a climate risk, there’s equipment risk. And the one thing data centers do, they want to be up. They want to be resilient, and that’s what we want FM to be. We’re launching what we’re calling this Intellium program…so we’ve got a full global team now dedicated to doing this.
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You mentioned before you have something like 20 research projects on data center risks ongoing. Can you give an example of what you’re looking into?
One of them is battery energy storage systems. When you’ve got the power, but also you need to have battery systems to support it. [That’s a] huge fire risk…The research team is working on how to most cost-effectively allow clients to build those and do it safely.
We could just deploy capacity against it, but that’s not what clients ultimately need. They go, ‘No, tell me how I don’t go down. I know the market will pay me if I have a loss. I just can’t afford to be down.’ That’s why we said we’ve got to get the best research and dedicated teams to get after this.
You mentioned secondary perils. What’s the risk with secondary perils, how is it evolving, and how can organizations better manage it?
Firstly, as an industry, on the back of the hard market, everybody’s been using it as a reason to just keep increasing rates and increasing deductibles. I look at our industry, and FM in particular, of what’s our relevance? I need to be relevant to that customer base.
We’ve been researching a lot on…smart things to do on flood, hail-resistant roofs…So when you have that dialogue with the client, now they’re talking about solutions and not just, ‘How much is the cost of a risk and what’s my deductible?’
What does FM do to encourage these practices, like hardening against hails or building flood barriers?
We came up with a concept called the climate resilience credit. We had an analytics AI tool of our engineering that provided [clients with], here’s your top, say, six exposures—flood, hail—across your global footprint, and we’re also going to give you a 5% premium in the term of a climate resilience credit to work toward those implemented fixes that are solutions we recommend. It’s the best thing we’ve done…Our clients have eradicated, by the end of this year, $50 billion of loss expectancy of exposures by implementing the credit recommendations.
Correction 05/15/2025: This piece has been corrected the name of FM Global to FM.