Data centers are in high demand. As organizations increasingly adopt AI applications, the demand for vast amounts of data storage and processing capability has surged. According to the latest , 68% of leaders surveyed said their companies will invest between $50-$250 million in GenAI in 2025.
Many industries are adopting AI technologies, leading to a heightened need for reliable infrastructure to deploy AI models effectively and maintain operational efficiency. According to recent , sectors showing the highest usage of AI include finance, healthcare, manufacturing, retail, technology, professional services, and media, with the information sector (including tech and data companies) demonstrating the biggest uptake.
Infrastructure needs
AI does not run on magic. It requires substantial infrastructure and lots of power.
Training large AI models involves significant computational demands and requires considerable processing power and energy to run that processing power. According to a , a ChatGPT query requires nearly 10 times the energy of a Google search. The report also estimates that data center power demand will grow 160% by 2030. According to , data centers could account for 44% of U.S. electricity load growth from 2023 to 2028, followed by about 27% from the residential sector, 17% from manufacturing and the remainder from the commercial sector.
Unlike traditional computing, AI models are continuously learning and processing data, which necessitates almost constant access to computing resources. Additionally, AI applications often manage large volumes of data that need to be stored and accessed quickly. Some AI applications require real-time data analysis, highlighting the importance of robust networking capabilities, including high-speed connections. Overall, AI infrastructure demands considerable resources in terms of space, power, and a sturdy structural design to support its unique requirements.
Construction is booming
According to industry sources, data center construction spending grew at a staggering 45% over the last year. reported that in just the first six months of 2024 alone, 78 data center projects kicked off construction. There are some 335 data centers currently under construction, with boasting the most construction activity currently. Construction activity is expected to grow by 25% in 2025.
More centers capable of processing more, require more power. Data centers' increasing energy needs are raising some concerns about how they may strain existing electrical grids. For nearby communities, this can impact power quality and reliability. Some fear that the rapid growth of data centers is consuming more than just power but valuable land as well.
Construction challenges
While the need for more data centers is good news for the construction industry, especially contractors equipped to build them, there are many lingering industry risks that need to be kept in check.
The construction industry is susceptible to supply chain issues, which can delay the procurement of essential materials and equipment need to get data centers up and running. This is particularly significant for specialized equipment like servers and cooling systems that may face longer lead times. The impact of recently imposed tariffs on steel and aluminum may impact current data centers projects by increasing construction costs, energy costs, and add to current supply chain issues.
The construction industry continues to experience labor shortages, which without proper planning, can hinder project timelines and increase labor costs. Skilled labor, especially those with complex electrical and mechanical experience, is especially crucial for the specialized tasks involved in data center construction.
Insuring the build
The construction of data centers is complex, involving specialized systems for cooling, power supply, technology and security concerns. Data centers construction have evolved from traditional methods, which involve building entirely on-site, to modular construction, where prefabricated units are created in factories and then assembled on-site. This modular approach offers benefits like reduced construction time, scalability, and improved quality control, though it also introduces specific risks during assembly.
Whatever the delivery method, data centers involve significant investments that require the financial protection that Builder’s Risk insurance is designed to offer.
Builder’s Risk insurance provides coverage for physical damage that occurs during the course of a construction project. It generally covers risks such as theft, vandalism, fire, and weather-related damages during the construction phase.
Delays can result from this physical damage. For a data center operator, that means loss of income. When a construction delay prevents the owner from leasing space to tenants, there is loss of rent coverage, available as an endorsement to a Builder's Risk insurance policy. Loss of rent coverage covers lost rental income that would have been earned if there hadn't been a delay.
Exposure concerns
Extreme weather can be a real concern for data centers. While it is important to build data centers outside of flood zones and at higher elevations, many data centers are built in areas that are still vulnerable to natural disasters. Regions prone to tornadoes, such as the central United States (Tornado Alley) including Texas, are home to many data centers due to wide open spaces, logistical advantages, and access to power, as well as close proximity to urban areas. Fortunately, as data center construction and planning has evolved, taking extreme weather into consideration and building centers that can withstand a EF-4 tornado with winds up to 200 miles an hour.
Fire is another big concern. Welding poses a significant fire risk in data centers because the intense heat generated by the welding process, including sparks and molten metal, can easily ignite flammable materials present within the data center, like cables, insulation, or even dust buildup, potentially causing a major fire due to the close proximity of sensitive electronic equipment. And data centers operate 24/7 and consume significant amounts of electricity, generating substantial heat and raising the potential for fires, particularly during the completed operation phase. This phase presents a higher risk compared to traditional construction projects, especially as sensitive equipment is already installed. Any fire incident can lead to much greater damage. Additionally, the loss of data in the event of a fire can be exceedingly costly.
Cooling systems, vital for maintaining optimal operating temperatures for servers and other equipment, also pose potential risks. One of the primary concerns is the scale and complexity of the piping associated with these cooling systems. Data centers often use large-diameter pipes and extensive networks for chilled water distribution, which can lead to substantial water damage if not properly installed, maintained, or inspected. A failure in these systems, whether due to improper installation or a lack of understanding of the systems' operational requirements, can result in significant leaks or bursts, causing extensive damage to the facility and its critical infrastructure.
With an influx of new contractors entering the data center construction space, there is an inherent risk that these firms may lack the specialized knowledge required to navigate the complexities of cooling system installations. This can lead to oversights that may not only compromise the integrity of the systems but also expose the project to significant financial liabilities due to water damage claims.
The complexity involved in the installation of HVAC and power supply systems is critical for data center operations. The necessity for redundancy, such as N+1 design, ensures continuous operation without interruption. An N+1 design is a redundancy strategy used in critical infrastructure, such as data centers, where "N" represents the number of required components needed to handle the expected load, and the "+1" indicates an additional backup component. This ensures that if one component fails, the extra unit can take over, thereby maintaining operational continuity and minimizing downtime. This complexity also increases the probability of potential loss scenarios.
Installation errors may also lead to outages or fires during both the commissioning and completed operation phases. Furthermore, any remedial work performed during completed operations can pose risks to expensive equipment.
An excess layer of protection
Excess casualty insurance provides coverage beyond standard liability limits, protecting against large claims that could arise from accidents or incidents resulting from injury or property damage from construction operations. Excess casualty insurance is crucial when constructing data centers for several reasons.
Construction workers on a data center site face significant risks on a data center jobsite -- high voltage electricity, fires hazards, heavy lifting, falls from heights, exposure to extreme temperatures, confined spaces, and hazardous materials like refrigerants used in cooling systems. Strict safety protocols are essential in managing the risks to construction workers as well as to third parties on the jobsites.
As technology evolves, contractors must upgrade data centers, highlighting the need for insurance to cover potential liabilities during construction. When building or upgrading an active data site, contractors could damage client property or costly equipment. Additionally, it is crucial that the facility operates at its intended level, ensuring quality control and compliance with design specifications for the end use. Data centers operate 24/7 and consume a significant amount of electricity, generating substantial heat and could cause potential fires. It is important that HVAC or cooling systems are installed correctly. Non-combustible duct work is essential in data centers to enhance fire safety by preventing the spread of flames and reducing smoke production, helping maintain operational continuity and reduces liability risks.
The complexity of data centers introduces inherent risks, including pricey equipment, cooling and continuous advancement needs, and excess casualty insurance helps manage the impact of these incidents. There may also be legal requirements for certain types of insurance coverage depending on the location and nature of the data center; excess casualty insurance can help meet these regulatory standards.
In the event of a significant construction claim, excess casualty insurance can cover legal fees, settlements, and other associated costs. Overall, excess casualty insurance is an essential component of risk management for anyone involved in data center construction, helping to safeguard against a wide range of potential liabilities and ensuring business continuity.
Managing risks to grow
Building data centers involves navigating a complex landscape of construction risks, with builder’s risk and excess risks playing pivotal roles in safeguarding projects. By understanding these risks and implementing effective management strategies, stakeholders can enhance the likelihood of successful project completion while protecting their financial interests.
As the demand for data centers continues to grow, prioritizing risk management will be essential to harnessing the benefits of this critical infrastructure.
About the Authors
Robbie Hammett is a Senior Underwriter for the Property- Construction team. Laura Vallerio is Senior Underwriter of Excess Casualty for Construction.
Global Asset Protection Services, LLC, and its affiliates (鈥溕喽嗍悠礡isk Consulting鈥�) provides risk assessment reports and other loss prevention services, as requested. In this respect, our property loss prevention publications, services, and surveys do not address life safety or third party liability issues. This document shall not be construed as indicating the existence or availability under any policy of coverage for any particular type of loss or damage. The provision of any service does not imply that every possible hazard has been identified at a facility or that no other hazards exist. 色多多视频Risk Consulting does not assume, and shall have no liability for the control, correction, continuation or modification of any existing conditions or operations. We specifically disclaim any warranty or representation that compliance with any advice or recommendation in any document or other communication will make a facility or operation safe or healthful, or put it in compliance with any standard, code, law, rule or regulation. Save where expressly agreed in writing, 色多多视频Risk Consulting and its related and affiliated companies disclaim all liability for loss or damage suffered by any party arising out of or in connection with our services, including indirect or consequential loss or damage, howsoever arising. Any party who chooses to rely in any way on the contents of this document does so at their own risk.
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