Skip to main content

Article

Data Centre Lifecycle Risk Management and Insurance Program in Asia: Everything you need to know

The Asia Pacific data centre market is forecast to grow at a compound annual growth rate (CAGR) of 12% from 2023 to 2028, reaching US$53.58 billion by 2028 [1] The top two markets in Asia, Singapore and Hong Kong, continue to consolidate their positions with 173 and 79 megawatts (MW) of capacity under construction.[2]  Meanwhile, Japan, Indonesia, and Vietnam are leveraging their connections to a growing network of undersea cables to fuel the growth of their data centre markets.

Behind the Asia data centre growth trend is an interconnected, evolving landscape of risks that the data centre value chain — such as data centre developers, operators, and tenants — must confront. 

Mapping the data centre value chain in Asia

The value chain begins with the landlords that lease out the space and typically provide network capacity and power, as well as the cooling equipment that keeps down server temperatures. They have to ensure that the structure meets certain specifications and regulatory standards, which may include a minimum Power Usage Effectiveness (PUE) rating. This is followed by data centre operators such as cloud vendors or telecommunications that lease the space, set up the IT equipment and manage the day-to-day operations of the data centre facility, as tenants.

At the same time, major technological companies and telecommunication, and international cloud service providers are taking an enterprise build-own-operate approach that cuts across the value chain. This model allows them to vigorously control and streamline the construction process and ensure the security and performance of their data centre operations. There are also a handful of Asia developers that manage data centres via various models through Real Estate Investment Trusts (REITs).

The interconnectedness of the data centre value chain puts the spotlight on the need for robust business continuity and liability risk management and insurance.

What are the risks facing the data centre developers, operators and tenants?

A data centre is a mission critical facility that requires high availability. Each data centre is typically categorised by its infrastructure capability across four tiers (Tier I to Tier IV). Developers, operators, and tenants of Tier IV data centres — the tier with the lowest fault tolerance — rely on robust, best-in-class risk mitigation and transfer solutions to ensure they are safeguarded against significant losses across the data centre lifecycle: plan, design, build, operate, and assess.

Data centre management: Risk and solutions matrix

Risks specific to the construction phase

In the construction phase, nearly all contracts are set up, as standard, for project owners and contractors to be covered by Construction All-Risk (CAR) and Third-party Liability (TPL) insurances, whereas non-recourse project financiers, including private equity firms, will expect the party raising the finance to procure these CAR insurances along with a Delay in Start-up (DSU) insurance component to mitigate the financial risk of project delays caused by physical damage to project works.

In particular, the DSU sum needs to be carefully evaluated to obtain the appropriate coverage as the revenue flowing from completed data centres can be immediate and significant, meaning any delay will be costly. At the same time, any unnecessary DSU insurance over-commitment will result in high premium costs for the duration of the loan and the future operational model — lease, co-location, or otherwise — will need to be factored in.

When bidding for data centre projects, contractors must pay particular attention to their contractual liability risks and need to include detailed information to meet stringent tender requirements, including their methods for performing hazard analysis. Contractors must display a good understanding and planning for the additional challenges of designing and building a data centre, and be aware of the differences in construction contracts from a project party that originates outside of Asia (e.g. the US).

Click on the key risk headers below to learn more about each type of risk and the respective insurance considerations.

Your partner in mitigating and insuring against data centre risks

With a wide range of in-depth risk advisory, mitigation, risk financing and claims expertise in Asia’s construction, technology, real estate, and private equity sectors coupled with market knowledge, data and analytics capabilities, and an extensive network of insurers and private equity firms, Marsh can help you identify and solve pressing challenges at every stage of the data centre lifecycle. 

Asia's Data Centre Risks: Unravel the Blind Spots Webinar

Safeguard your data centre investment in a complex risk and insurance landscape

Schedule a non-obligatory chat with a Marsh representative today.

Sources

[1] - Asia Pacific Data Centre Market Report 2023: Demand for High-Density Data Centers by Businesses is Augmenting Sector Growth. Research and Markets. (2023). https://www.globenewswire.com/news-release/2023/03/03/2620074/28124/en/Asia-Pacific-Data-Centre-Market-Report-2023-Demand-for-High-Density-Data-Centers-by-Businesses-is-Augmenting-Sector-Growth.html

[2] - APAC Data Centre Update: H2 2022. Cushman & Wakefield (2022). https://www.cushmanwakefield.com/en/singapore/insights/apac-data-centre-update

[3] - Extreme weather affects nearly half of data centers. Uptime Institute (2021). https://journal.uptimeinstitute.com/extreme-weather-affects-nearly-half-of-data-centers/

[4]- Technology Risk Management Guidelines. Monetary Authority of Singapore (2021). https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulatory-and-Supervisory-Framework/Risk-Management/TRM-Guidelines-18-January-2021.pdf

[5] - Hackers Scored Data Centre Logins for Some of the World’s Biggest Companies. Bloomberg (2023). https://www.bloomberg.com/news/features/2023-02-21/hackers-scored-corporate-giants-logins-for-asian-data-centers#xj4y7vzkg

[6] - Top 40 Data Centre KPIs. Sunbird. (2020). https://www.sunbirddcim.com/ebooks/top-40-data-center-kpis

Our People

Placeholder Image

Larry Liu

Communications, Media, and Technology (CMT) Industry Leader, Marsh Asia

  • China