Build It And They (Storms) Will Come

• Increasingly, data centers are being built in clusters
• Those clusters are in areas of storm activity
• As capacity clusters, and exposures expand, large losses loom

‘Thar she blows’

The problem isn’t just how valuable these buildings are. It is where they are. Over 80% of long-term severe convective storm loss trend is tied to growth in exposure (valuable assets are being built in exposed areas). The other issue is the expansion of ‘Tornado Alley’.

We overlaid NOAA’s 1980-2024 frequency map of $1B+ (CPI adjusted) severe convective storms with data center aggregation pattern, it is clear that ‘New Tornado Alley’ includes several fast-growing clusters:

Sources: Data Center Map (DCM), NOAA, TransRe

Because data centers are designed for continuous uptime, even limited physical damage (wind and hail, heavy rainfall, localized flooding) can cause significant business disruption.

‘Houston, we have a problem’

A big concern is the instability of power supply, especially in Texas where much of the state operates on an isolated grid with limited ties to the broader U.S. network. Texas has updated its weatherization/building codes and improved power generation/storage since Winter Storm Uri (2021) caused widespread blackouts, but the exposure remains elevated.

‘Winter is Coming’

We took NOAA’s frequency map of $1B+ (CPI adjusted) winter storms from 1980-2024 and overlaid with hyperscaler clusters; a significant concentration in the area facing elevated winter storm risk:

Sources: Data Center Map (DCM), NOAA, TransRe

Virginia shares the Eastern Interconnection, so disruptions to electricity supplies may start upstream (fuel supply, generation, transmission), especially during weather events when electric grids are under considerable strain. This risk is heightened by Virginia’s relatively frequent winter storms, which can drive outages and place additional stress on an already constrained grid.

‘Under Pressure’

Local community protests are changing the political environment. So far three states (California, Utah and Ohio) have passed legislation increasing the burden on data center developers, by requiring them to pay for the additional infrastructure needed (including new generation and grid upgrades). Currently 27 other states are considering similar changes. Developers making site location decisions are weighing local politics as part of the process.

For re/insurers, the question is no longer whether an individual site is engineered well enough for local weather conditions. That still matters, but it is only part of the picture. A portfolio perspective is required – Where are values clustering? What infrastructure dependencies are shared? How exposed are those dependencies to storm activity? Underwriters learned some tough accumulation lessons from car manufacturing in 2011 (Thai floods) and 2013 (German hail). Those lessons are applicable to data centers, to ensure pricing and accumulation management reflect the potential for both property and interruption loss. 

Please contact Haley Sisk, Research Analyst  with any questions or comments on this topic.