INDIANAPOLIS — A surge in data center construction, driven by demand from companies developing artificial intelligence and other technology resources, is putting pressure on risk managers and insurers to adequately safeguard the projects.
Construction companies should carefully evaluate the risks involved and review the insurance available to cover the potentially huge exposures, experts say.
The sometimes remote locations of the projects add another layer of complexity for risk managers to consider, they said during a panel discussion and meetings last week at the IRMI Construction Risk Conference.
According to a U.S. Census Bureau report, the annual value of private construction related to data centers was $41.42 billion in August, up 25.7% from August 2024 and more than double the August 2023 estimate.
Contractors, subcontractors and developers are all interested in taking on data center projects, but they should ensure that each project is right for them, said Chase C. Leist, vice president, insurance and risk at HITT Contracting in Washington.
“The risk evaluation process should be something that is in the initial stage of your risk management overall strategy, and that includes having clear buy-in from leadership, ownership and operations leadership, about ‘Is this the right project for me and my team? Do I have the expertise to do this project?’” she said.
If contractors are confident they have the resources and available subcontractors, then they can address insurance issues, including builders risk coverage, Ms. Leist said.
Brokers and insurers have created specific forms and endorsements aimed at data center projects, she said.
“Sometimes there’s some variation between insurers, and it’s wise to make sure you or your qualified insurance professionals are doing an analysis between forms,” Ms. Leist said.
Often, project owners buy builders risk policies, but contractors should review the policies to ensure they align with their own coverage requirements, including the total insured value and deductible levels, she said.
New sites for data centers sometimes require extensive excavation work before construction begins, so the timing of when the builders risk coverage begins and the exposures at risk during excavation, such as trailers, need to be considered, Ms. Leist said.
The size of data center projects is straining capacity across all lines of construction insurance coverage, said Jim Dunn, Atlanta-based U.S. construction practice leader at Marsh.
“The scale of the projects has really outpaced what’s available,” he said.
Construction industry policyholders are exploring alternative capacity, such as parametric coverage supplied by alternative capital providers, Mr. Dunn said.
New capacity is also entering the market through managing general agents in the excess and surplus lines market, he said.
“It takes a little while for owners and contractors to get comfortable, but certainly, the E&S market has filled the gap in a lot of cases, Mr. Dunn said.
Marsh is seeing interest in its data center insurance program Nimbus, which it launched in the United States in September, he said.
Many data centers, which are filled with high-value equipment, need cooling systems that use water instead of just air, said Aldo Fucentese, Boston-based head of large construction, Global Risk Solutions North America at Liberty Mutual.
“They have water pipes that go to the facility and when you have water, you could have problems, if something is not installed appropriately or if you have leaks,” he said.
In addition, the concentration of values — where $10 billion facilities are being built in 18 months — is a concern for underwriters, particularly with respect to natural catastrophe exposures, Mr. Fucentese said.
Typically, individual data centers are covered by a consortium of insurers on a quota share basis, he said.
“But at least from a casualty standpoint, we view this exposure as kind of preferred, because the data centers are built in the middle of nowhere, so you don’t have a lot of public exposure,” Mr. Fucentese said.
The growth in data centers is also fueling demand for insurance coverage for associated projects, said Adrian Pellen, co-leader of the North American construction and infrastructure group at NFP, an Aon company, in Chicago.
For example, the data centers have significant power requirements, which has led to a surge in substation work in the surrounding areas, he said.
“Where we’re focused, given the crowded environment around the data center space itself, is what I’d call data center-adjacent infrastructure,” Mr. Pellen said.
