Extreme weather becomes a new threat to AI data centers: Insurers and operators simultaneously sound the alarm

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The global expansion of AI infrastructure is facing direct impacts from climate risks. Insurance companies’ underwriting loss data and risk assessments from climate research institutions show that extreme weather has evolved into a systemic threat for the AI data center industry, forcing insurers to reprice and operators to redesign.

According to recent data from global insurance group Zurich, in the past three years, extreme weather has risen to become the leading source of loss in its U.S. data center construction insurance portfolio, accounting for one-third of all losses. Meanwhile, research from climate risk analysis agency First Street shows that 79% of global data center capacity is facing acute climate risks such as flooding, extreme winds, and wildfires. Risk management firm Marsh Risk warns that if the industry fails to effectively manage these risks, it will threaten the “capital stack driving the AI data center revolution.”

The market impact is beginning to appear. As data center construction accelerates expansion into suburbs and emerging regions, operators are exposed to higher climate risks. Hyperscale cloud service providers like Microsoft have adjusted facility design strategies, while Nvidia has responded to the challenge with cooling technology upgrades. Related HVAC suppliers are, for the first time, seeing “climate change factors” included in specifications for European clients.

Insurers Sound the Alarm: Extreme Weather Becomes Top Source of Losses

Patrick McBride, Head of International Construction Insurance at Zurich Group, told CNBC that in the past three years, extreme weather has replaced other risk categories to become the largest single driver of losses in the company's U.S. data center construction insurance portfolio, accounting for one-third.

McBride attributes this trend partly to a fundamental shift in site selection structure. Many data centers are migrating to suburbs and rural areas where land costs are lower, and due to limited past development, these areas often lack records of extreme weather. “Now we have $3 billion worth of assets in these areas, exposed to climate event risks within more than one mile radius,” he said.

Joe Macejak, Head of U.S. Property Digital Infrastructure at Marsh Risk, said that the impact of climate risk on digital infrastructure is “not a question of ‘if’, but how the industry recognizes, quantifies, and manages these risks.” He warned that if poorly managed, companies will face rising costs and operational failures, ultimately “threatening the capital stack that drives the AI data center revolution.”

Expansion into Emerging Markets Exacerbates Risk Exposure

McBride pointed out that this year, 64% of data center capacity under construction is located outside traditional core regions like Northern Virginia, moving to “frontier markets” such as West Texas, Tennessee, Wisconsin, and Ohio. These regions face threats like tornadoes, hail, and strong winds, and the large exposed rooftop HVAC systems, cooling towers, and solar installations of data centers are significant risk points.

McBride also cited Brazil as an example, noting that, as an emerging data center market, the country faces major heatwave risks; in Europe, data centers are migrating to regions like the Iberian Peninsula, where warming trends are pronounced. “Extreme weather can no longer be treated as a background risk,” McBride said, “this is one of the first issues we examine with owners.”

First Street’s research further quantifies the overall exposure: 79% of global data center capacity faces threats from acute climate risks such as flooding, extreme winds, and wildfires, potentially causing operational interruptions, increased downtime, and higher insurance and repair costs.

Dual Pressure on Power Grids and Data Centers

Mishal Thadani, co-founder and CEO of AI software platform Rhizome, pointed out a core contradiction: extreme heat exerts simultaneous pressure on both data centers and the power grids they rely on.

Under normal temperatures, cooling systems account for about 40% of data center energy consumption; during extreme heat, this proportion rises further, and the spike in cooling demand significantly increases the load on the power grid. “Data centers need power most when the grid is least able to provide it,” Thadani said.

He cited the case of Turin, Italy as evidence: in May this year, Turin's highest temperature reached around 38°C (100°F), the heat caused thermal stress to the city's underground cables and led to a series of power outages. “Now add facilities drawing as much power as 100,000 households per data center, both heat and load simultaneously hit the same line. Data center load can be reduced during the most challenging periods, but most planning models still don’t fully account for the significantly increased frequency of extreme heat,” he said.

Operators Accelerate Design Adjustments, Technology Innovation Follows

Faced with these challenges, leading operators are responding. A Microsoft spokesperson told CNBC that the company has focused on ensuring data centers can run reliably “under a wide range of environmental conditions,” and manages risks from extreme heat and severe weather through site optimization, redundant systems, and real-time monitoring.

Chip giant Nvidia announced last week that its latest AI server liquid cooling system can operate with coolant temperatures up to 45°C, higher than previous standards. Nvidia stated that for each 1°C increase in coolant temperature, cooling energy costs can decrease by about 4%.

Aaron Lewis, Chief Commercial Officer for Global Data Center Solutions at HVAC company Johnson Controls, said these developments are driving the industry’s technological evolution. The company has conducted endurance tests on data center cooling equipment under different temperature conditions. Lewis revealed he recently saw, for the first time, a European client include a “climate change factor” in equipment specifications, requiring data center designs to adapt to future warming scenarios.

“Ultimately, the market will form diverse combinations of systems and applications. As technology continues to evolve, we are finding more effective ways to dissipate heat. The innovation pace driven by the data center boom will enable us to continue operating under these conditions for a long time,” Lewis said.

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