Navigating the New Risk Landscape of Data Center Construction

• November 17, 2025

By Emmanuelle Huard-Auray

Data centers are the backbone of the digital economy. From streaming platforms and e-commerce to enterprise cloud services and artificial intelligence (AI) workloads, nearly every aspect of modern life depends on these critical facilities.

As AI evolves at an unprecedented pace, the demand for data centers is surging. Driven by explosive growth in cloud computing, AI and digital services, tech giants and colocation providers are racing to build infrastructure capable of supporting the world’s insatiable appetite for data.

However, this rapid expansion brings a new set of construction challenges and a growing need for sophisticated insurance solutions to manage the risks.

Today’s data centers are vastly different from those built just five to 10 years ago. They are significantly larger, more technologically advanced and subject to far more aggressive delivery timelines. Hyperscale campuses now span hundreds of acres, require gigawatts of power and cost anywhere from hundreds of millions to several billion dollars to build.

Historically, data centers took two to three years to complete. Today’s builds—often multiple times the size—are expected to be delivered in just 15 to 24 months. These compressed schedules leave little room for error. Any delay, design flaw or equipment failure can result in millions of dollars in downtime and lost rental income.

The scale and complexity of these projects—often involving multi-building, multi-phase construction—requiring extended insurance coverage periods. Overlapping phases of design, construction and operations increase the risk of coverage gaps, particularly during transitions between policies.

To meet tight deadlines, developers are increasingly turning to fast-track delivery models such as design-build, modular construction and integrated project delivery (IPD). While these methods can accelerate project completion, they also introduce new risks.

In design-build arrangements, the contractor assumes responsibility for both design and construction. This can blur lines of accountability and complicate claims resolution when issues arise. If a system fails or a performance target is missed, multiple parties may be implicated, raising legal exposure and costs.

Modular construction, which involves off-site fabrication, requires precise coordination across parties and geographies. Any misalignment can lead to costly delays or rework—and off-site activities introduce unique risks that must be addressed through tailored insurance coverage.

Meanwhile, construction costs are rising. Materials such as copper, steel and concrete are subject to price volatility and tariffs. At the same time, specialized equipment for data centers is becoming more expensive and harder to source due to surging demand.

Builders risk policies are typically based on estimated project values at the time of financing, which sets the foundation for policy limits. If costs escalate mid-project, those limits may no longer be sufficient, leaving stakeholders exposed. Real-time cost tracking is essential to ensure that insurance coverage remains aligned with actual expenditures and evolving project scopes.

Global supply-chain disruptions continue to impact data center construction. Lead times for critical components can stretch for months, and competition for resources is intense. These delays not only threaten project schedules but also increase exposure for insurers. Even minor claims can result in significant delays due to the time required to source replacement equipment or materials.

Procurement strategies are under greater scrutiny. Developers must diversify suppliers, maintain critical inventory reserves and build buffer periods into project schedules. These measures are crucial for mitigating supply-chain volatility and ensuring that insurance coverage accurately reflects the current realities of today’s data centers.

As the market for data centers expands, new contractors and developers are entering the space. While this growth is necessary to meet demand, it raises concerns about experience and capability.

A potential errors & omissions issue is when agencies have not considered all the potential coverage exposures their client may have. For example, an agency was contacted about placing coverage for a new data center located near a small town in Kentucky. The data center chose this site as the land was affordable and there was an adequate number of workers to choose from in the vicinity. The only issue had to do with the power needed to feed the data center. So, the builders of the data center were also building their own power plant to provide the power needed.

The agency had never procured coverages needed for building a data center or power plant, but it agreed to place the coverages as requested by the data center. Coverages were put in place and construction began. Everything went well with the construction.

Once the power plant was ready to start, the facility needed to be tested. The power plant was started up, and all systems were running within acceptable parameters. Convinced that everything was operating correctly, power was delivered to the data center. However, the power that was delivered was much higher than expected, blowing out relays and breakers in the data center.

The post-loss investigation revealed that the power overload originated in the control room, which was severely damaged by the power surge. The control room had to be rebuilt, and a claim was made on the builders risk policy. However, the carrier supplying the builders risk coverage discovered the control room was not built on site. The control room was built at another location in Indiana and then shipped to the power station in Kentucky.

The builders risk policy only covered construction on site in Kentucky and, accordingly, the carrier denied the claim for the replacement of the control room. The builder of the data center then filed suit against the builders risk carrier and the agency, stating that either the carrier owed the coverage under the policy or the agency was liable for not providing the coverage needed.

This type of claim occurs when an agency ventures into placing coverages it is not accustomed to handling and therefore does not fully understand all the potential risks its customer may face.

Beyond the impact on builders risk policies, many lines of insurance will need to evolve to respond to the changing dynamics of the data center ecosystem and the challenges their policyholders now face.

Emmanuelle Huard-Auray is head of engineering and construction, U.S., Swiss Re Corporate Solutions America Holding Corporation. Insurance products are underwritten by Swiss Re Corporate Solutions America Insurance Corporation and Swiss Re Corporate Solutions Capacity Insurance Corporation, a member of the Swiss Re group of companies (“Swiss Re”).

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of Swiss Re and/or its subsidiaries and/or management and/or shareholders.