Insurance Foundations for AI Infrastructure

Glossary

Basis Risk

The gap between a parametric trigger and the policyholder's actual loss: the index may fail to fire despite real damage, or fire when little damage occurred. Minimizing it requires an index that tracks the insured's true exposure closely.

Builder's Risk (Construction All-Risk)

Cover protecting a project during construction against perils like fire, weather, and theft before the facility is complete and earning revenue. Lenders commonly require it before releasing construction funds to protect their collateral.

Business Interruption Cover

Insurance that replaces lost income and continuing fixed costs when a covered physical loss halts operations; for a data center it can exceed the building's replacement value because compute revenue accrues far faster than the structure depreciates.

Capacity

The total amount of insurance the market is collectively willing to provide for a given risk or region. It is finite and can be rationed, which is why capacity, not price, is often the first thing to run out on a large risk.

Correlated (Aggregation) Risk

The danger that many insured losses occur together from a single event rather than independently, draining the pool faster than premiums can refill it. Clustering facilities in one region concentrates this risk, which underwriters fear most.

First-Party vs. Third-Party Cover

The organizing split of insurance: first-party pays for harm you suffer (your own damage, downtime, ransom), while third-party pays for harm you cause others (claims and lawsuits brought against you). It structures both property/casualty and cyber.

Parametric Insurance

A policy that pays a pre-agreed amount when an objective, measurable trigger (such as wind speed or a river-gauge reading) crosses a threshold, regardless of actual loss. It trades precision for speed, delivering fast liquidity but carrying basis risk.

Surety Bond

A three-party guarantee that one party will fulfill an obligation to another; if it fails, the surety makes good and then seeks repayment from the failed party. Performance and payment bonds guarantee that contractors finish work and pay subcontractors.