Re/insurance industry must capitalise on huge data centre opportunity: Turk, Lloyd’s

Data centres offer re/insurers a massive opportunity due to their scale, but they also carry significant risks, and if the industry cannot quickly provide solutions that meet the needs of technology giants, these risks could move into captives, said Rachel Turk, Chief Underwriting Officer at Lloyd’s, the specialist insurance and reinsurance marketplace.

Speaking during Aon’s Navigating Market Cycles panel, Turk highlighted the vast capital requirements of data centres, which pose a key challenge for the re/insurance industry as it seeks to capitalise on this opportunity.

She said, “When you think about what’s the requirement, I hear the numbers being bandied around, saying we’re going to need a $20 billion line. That is enormous. But if we’re building a data centre the size of Manhattan, then maybe that is the line size that’s required. How then does the industry grapple with that idea?

“To be clear, you don’t build up $20 billion line sizes with lots of $100 million syndicated together. That’s just totally inefficient. How do we do that? And therefore, when I look at it from a Lloyd’s perspective, what are the levers I need to pull? What are the restrictions I need to ease off in order to allow people to go, ‘we could do it there, because that would be kind of cool, or we could pull some of the balance sheets together to get it done’?”

Turk noted that major technology firms, such as the so-called ‘Magnificent Seven’, have balance sheets larger than most insurance companies combined.

“If we don’t meet them with a solution for their needs, they will come up with something which will either be mutualisation or we’re just putting it all in captives, and we’ve lost a massive opportunity,” she stressed.

Turk continued, “So, we have to think about, how do we deal with this, and dealing with it in a way that meets their needs. Rather than this is the way we as the insurance industry would like to sell you a product, and they go but that’s not the way we want to buy the product. We have to think about how they want to buy a product from us, and then how we can work out how to sell it the way they want to buy.”

Stephanie Ogden, UK & Ireland CEO of commercial and specialty lines insurer HDI Global SE, also spoke on Aon’s panel, echoing Turk’s view that data centres represent a major growth opportunity for the industry.

However, Ogden cautioned that these facilities also come with a wide range of risks that re/insurers need to carefully consider.

“The pace of the bill, the IDI, the water scarcity, the BI, there’s things that you have to think about. And the list genuinely was three pages long in terms of the considerations that we need to think about, that you need to model, that you need to work through.

“And then, as you say, building a tower of $20 billion, how’s that going to work? I think it’s going to be quite an interesting area to look at, because there’ll be some things now that we’re still not talking about where it will potentially hit us. Therefore, careful as we go,” concluded Ogden.