Insurers are increasingly turning to catastrophe bonds and alternative capital structures to address growing coverage gaps tied to large-scale data center developments. The shift comes as demand for insurance tied to artificial intelligence infrastructure rises and traditional capacity struggles to keep pace.

Brokers and insurers are working with private capital firms and hedge funds to issue catastrophe bonds, also known as cat bonds, as well as special-purpose vehicles. These structures aim to provide additional capital to cover risks associated with data centers, including fire, flooding, and cyberattacks.

The scale of data center investments has reached tens of billions of dollars. As a result, available insurance coverage has not kept up with lender and developer needs. Industry participants say this imbalance is driving the search for new capital sources.

Laurent Rousseau, head of global capital solutions at reinsurance broker Guy Carpenter, noted that demand for insurance continues to increase. He said the industry will need to access new sources of capital to meet that demand.

Lenders financing data center projects are seeking protection against a range of exposures. These include physical damage from fire and flooding, loss of high-value semiconductor chips, project cancellations, construction risks, and disruptions to power and water supplies.

Joe Peiser, head of risk capital at broker Aon, said insurance-linked securities tied to data centers will play a key role in addressing the volume of demand entering the market.

Cat bonds allow insurers and other issuers to transfer risk to investors. In exchange for higher yields, investors agree to absorb losses if a specified event occurs. If a triggering disaster takes place, bondholders may lose part or all of their investment.

The broader cat bond market has attracted participation from hedge funds, private capital firms, and retail investors. Higher yields relative to corporate and government debt have contributed to increased demand, driving record issuance levels in recent months.

Insurers are now exploring cat bond structures that could provide up to $1 billion in property damage coverage for a single data center or a group of facilities. These bonds would likely focus on major natural disasters such as earthquakes and hurricanes.

In addition, insurers are developing alternative investment vehicles designed to cover other risks, including cyber incidents and business interruption.

According to Rousseau, a data center cat bond offering up to $1 billion in coverage could yield at least two percentage points above comparable government bonds. These instruments are generally suited to investors seeking higher returns and willing to accept greater risk.

Industry participants also point to additional uncertainties surrounding data center projects. These include potential fluctuations in long-term demand for computing power and storage, as well as data centers' exposure to targeted attacks. Rousseau noted that data centers are considered strategic assets and may face heightened risk in unstable geopolitical conditions.

A cyber vulnerability is a weakness in an information system's security procedure that can be exploited to gain access, steal data, or disrupt operations. Identifying and managing these vulnerabilities helps reduce cyber risks and limit the impact of a breach.

As digital supply chains become more interconnected, the risk and severity of cyberattacks continue to increase. Threat actors are now targeting third-party partners and suppliers, exploiting vulnerabilities in their systems to access organizations across the value chain. According to Johnty Mongan, global head of Cyber Risk Management at Gallagher, identifying common vulnerabilities in widely used software can support proactive defenses against supply chain attacks and reduce systemic exposure.

Recent data highlights the scale of the issue. Pinsent Masons reported a rise in third-party and supply chain-related incidents, increasing from 6% of cases in 2024 to nearly 20% in 2025. During the same year, the average cost of a data breach reached $4.44 million.

Cyber Vulnerabilities in Complex Supply Chains

Despite the growing threat, many organizations do not consistently assess cyber risks within their supply chains. While 45% of large organizations review supplier-related cyber risks, broader adoption remains limited. The Cyber Security Breaches Survey 2025 found that just over one in 10 businesses review risks posed by their immediate suppliers.

Vulnerabilities in widely used software can affect large numbers of systems, particularly when updates are not applied. Information about these weaknesses is readily available on the dark web, where cybercriminals share tactics and discovered vulnerabilities.

At the same time, many firms have outsourced IT management, leading to reduced in-house expertise. When incidents occur, organizations often rely on external providers for response. In large-scale supply chain attacks, these third-party response firms may face capacity constraints, delaying remediation efforts.

Identifying Common Cyber Vulnerabilities

Organizations can strengthen IT resilience by improving cyber hygiene. Basic practices include identifying and updating software, implementing strong password protocols, and conducting regular system scans to detect vulnerabilities.

Five key steps to maintain effective cyber hygiene include:

• Train staff regularly through awareness sessions and phishing simulations
• Conduct system vulnerability scans to identify outdated or insecure software
• Implement multi-factor authentication and restrict administrative access
• Develop a clear incident response plan with defined roles and responsibilities
• Regularly review and update risk management strategies

In addition, organizations can extend these practices to third-party relationships. Continuous due diligence, supported by regular assessments rather than one-time evaluations, can help identify vulnerabilities across the supply chain.

Some organizations are taking more proactive measures. In 2026, a global information technology company reduced its supplier base to fewer than 10 after issuing an extensive risk questionnaire with nearly 500 questions. The process helped identify partners with stronger cyber risk controls and streamline the supply chain accordingly.

The Role of Common Vulnerabilities and Exposures

Cyber experts use Common Vulnerabilities and Exposures (CVEs) to track known weaknesses in systems and software. CVEs provide standardized identifiers for vulnerabilities and support improved detection and mitigation efforts. They also enable information sharing and more efficient resource allocation.

Benefits of CVEs include:

• Standardized identification of known vulnerabilities
• Improved detection methods
• Reduced cyber risk and attack exposure
• Enhanced threat monitoring
• Easier information sharing
• More effective budget management

Cyber Defense Center: Monitoring and Early Detection

The Gallagher Cyber Defense Center uses CVE data to assess risks and recommend mitigation strategies. Analysis indicates that six in 10 clients face common vulnerabilities due to shared technology platforms.

The center monitors vulnerabilities, conducts client-specific risk assessments, and communicates findings to support remediation. This approach also highlights broader industry patterns and reinforces the need for continuous monitoring.

By identifying trends across multiple organizations, the system provides early visibility into vulnerabilities that may be widely exploited. This allows organizations to address risks before incidents occur.

Building a More Resilient Approach

The increasing complexity of digital supply chains creates a larger attack surface for cybercriminals. Exploiting a single supplier can provide access to multiple downstream organizations.

Monitoring CVEs and identifying common vulnerabilities allows organizations to detect potential threats earlier. Proactive identification and response to widely used vulnerabilities can help reduce the likelihood of large-scale supply chain incidents and support overall cyber resilience.