Data Center Insurance

Small business insurance makes it easier for business owners in the data center industry to protect their investment and qualify for contracts and leases.

Some policies are required by state law. The most common requirements are workers' compensation insurance if you have employees and commercial auto insurance if you have business-owned vehicles.

If your data center doesn't have employees or uses personal vehicles for work, you won't be required to obtain workers' comp and will need hired and non-owned auto (HNOA) insurance instead of commercial auto.

Though insurance may not be legally required for data centers, there are several reasons why insurance coverage is beneficial:

• Compliance: Contracts or rental leases may require your business to carry specific types of insurance and to provide proof of coverage.
• Risk management: The right insurance will help your data center better prepare to handle and recover from common issues, including cyberattacks, weather-related events, and natural disasters.
• Financial security: Data centers are costly to operate and maintain, and insurance provides a financial safety net should anything happen to your center.
• Establishing trust: Your insurance coverage shows your customers that you're committed to protecting their data from vulnerabilities.
• Investment opportunities: Investors and lenders are more likely to work with your data storage business when it's adequately protected from potential risks and exposures.

Building a data center is complicated and expensive, and both artificial intelligence (AI) and cloud computing are driving demand for data center projects across the nation.

Construction projects often involve multiple contractors, strict deadlines, and expensive equipment, which increases the risk of delays and liabilities.

Developers usually need to manage insurance coverage across contractors and ensure compliance with specific insurance requirements to meet project demands. Having the right insurance products in place helps reduce financial risk before the data center is even opened.

Necessary policies for data center construction include:

• General liability insurance: Covers third-party bodily injuries or physical damage on-site.
• Builder’s risk insurance: Also called course of construction insurance, builder's risk is one of the most important types of coverage for construction projects. It helps cover damage to the building, materials, and equipment caused by events such as fires, storms, or theft during construction.
• Workers’ compensation insurance: This coverage is often mandatory for all construction professionals and helps cover medical expenses and lost wages if a worker is injured on the job.
• Inland marine or installation floater insurance: Protects equipment, such as servers, generators, and cooling systems, while they’re being transported, installed, or stored.
• Delay in start-up (DSU) insurance: This policy can help if construction is delayed by a specific, covered loss, such as a fire or flood.
• Environmental liability insurance: Data centers use large amounts of water for cooling and could create wastewater or pollution risks, leading to costly cleanup or regulatory issues.

There are two kinds of cyber insurance, both equally important for data centers:

• First-party cyber insurance protects against data breaches and cyberattacks that directly affect your data center, like as a DDoS attack that overwhelms your network or a data breach that exposes your clients' personal information, such as email addresses or credit card numbers. This coverage is also called data breach insurance.
• Third-party cyber insurance helps pay for legal costs when a client blames your data center for failing to prevent a data breach or cyberattack at their business. For example, a vulnerability in managed services your clients depend on could expose their customers' information.

Third-party cyber coverage is included in tech E&O insurance, which bundles cyber insurance with E&O coverage. You can add first-party cyber coverage as an endorsement to your general liability insurance or business owner's policy.

Data centers may need additional insurance policies to protect against other exposures:

• Business owner's policy: A BOP bundles general liability coverage with commercial property insurance to protect against common lawsuits and business property damage. It's often required for client contracts and commercial leases.
• Commercial property insurance: This coverage covers the cost of repairs or replacement if a fire, storm, vandalism, or other incident damages or destroys your business property or its contents. You can also add equipment breakdown insurance as an endorsement to help your business recover from machinery failure. To protect against extreme weather in areas prone to natural disasters, you may want to consider a parametric insurance policy.
• Electronic data processing (EDP) insurance: EDP protects your electronic equipment and digital infrastructure, including storage devices and computers, if you experience data loss due to a power supply failure, fire, or covered natural disasters.
• Employment practices liability insurance (EPLI): This type of insurance covers lawsuits arising from violations of employees' rights, such as wrongful termination or discrimination. EPLI can be added as an endorsement to a general liability policy or a business owner's policy.

It's easy to save money on business insurance through a few simple steps:

• Shop around. Get quotes from several insurance companies to find pricing that matches your budget. TechInsurance makes this possible with one easy online application.
• Bundle policies. When you buy policies from the same provider, it's often possible to combine coverages for a discount. The most common bundles are a business owner's policy and a tech E&O policy.
• Pay the annual premium. Insurers offer two options for paying your premium: monthly or annual. Paying the full annual amount usually costs less.
• Practice risk management. Avoid costly claims that can increase your premiums by reducing your risks. Eliminate clutter that could cause accidents, use detailed written contracts, and include redundancy in your systems.