Not Just a Bigger Building: Insuring Data Center Construction

As developers race to build the infrastructure behind AI, securing sufficient builder’s risk capacity, along with the technical expertise and flexible coverage these complex, hazard-exposed projects require, has become increasingly critical.

By Dustin Jones

Not long ago, a data center construction project looked much like a traditional large warehouse build. Today, a single hyperscale facility can carry billions of dollars in construction value and concentrate most of that value in electrical and mechanical equipment that arrives late in the schedule, all while completed server rooms begin operating alongside ongoing construction. That convergence of scale, speed and concentrated value is reshaping builder’s risk and putting unprecedented pressure on available insurance capacity. It is not just a bigger building – it is mission critical equipment with a roof on it.

When Conventional Coverage Meets Hyperscale Complexity

Builder’s risk coverage traditionally protects physical structures, on-site materials and equipment against construction perils. For hyperscale data centers, however, the challenge is no longer limited to protecting a building under construction. Coverage must respond to enormous concentrations of value, phased operations and lender requirements that can exceed what conventional programs were designed to accommodate.

Today’s data centers are highly complex, multi-billion-dollar campuses. Meeting the extraordinary computing demands of AI requires immense scale and substantial capital, leading developers to rely heavily on debt financing. Institutional lenders, in turn, require significant insurance limits before construction begins. With construction values routinely reaching $2 billion or more for a single building, and far more for multi-building campuses with shared power infrastructure, demand is colliding with a tightening supply of specialized builder’s risk capacity.

Owners also no longer wait for an entire campus to be completed before launching operations. Instead, they activate finished server rooms while heavy work continues on surrounding structures. This overlap means a builder’s risk policy covering the next phases shares a site, and sometimes a wall, with operating property insured elsewhere. The handover of each phase becomes a critical point in how coverage is structured and capacity is deployed.

Managing Accumulation Risks That Constrain Capacity

Data center growth is concentrated in major development corridors, increasingly in interior markets such as Texas and the Midwest, placing multi-billion-dollar sites directly in the path of severe regional weather and infrastructure constraints. In Texas, construction projects regularly confront volatile convective storms, straight-line winds and catastrophic hail outbreaks. One major carrier’s published portfolio data ranks severe weather as the leading cause of data center builder’s risk losses for three years running. These accumulations do more than increase potential losses. They also limit how much capacity insurers can responsibly commit to any one project, region or portfolio.

The power demands of data centers are creating another layer of accumulation risk. To secure supply, developers are increasingly bringing generation inside the fence: turbines, engines, battery storage and substations. That equipment has historically been underwritten by power and energy markets with specialized engineering. Now it sits inside a builder’s risk program, and the most severe losses are likely to occur when it is first fired, synchronized and load tested. Underwriters need to assess whether the technology is proven in service and who is commissioning it.

Delay exposure compounds all of this. When a covered physical loss disrupts construction or postpones a facility’s operational date, delay in start-up (DSU) coverage responds. DSU coverage protects developers against lost revenue and ongoing debt service resulting from that delay. Because key electrical equipment can take years to replace, a severe covered disruption can result in hundreds of millions of dollars in delay-related losses, increasing the potential severity insurers must account for when allocating capacity.

Testing and commissioning, when systems are energized for the first time, is where construction risk peaks rather than ends. Industry claims studies identify it as one of the highest-risk phases of a data center project, and NERC’s May 2026 Level 3 alert on large data center loads specifically addresses commissioning and grid stability.

These emerging exposures could materially affect whether coverage is available, how it is structured and how much capacity an insurer is prepared to commit.

Specialized Underwriting for Complex Risks

Together, these weather, power and emerging technology exposures create an underwriting challenge in both structure and accumulation that extends well beyond conventional property risk. With demand for builder’s risk limits outpacing available market capacity, specialty insurers must determine where, and on what terms, they can deploy their capacity responsibly.

Working with a specialty insurer gives developers, brokers and lenders more than access to capacity as specialty underwriters bring the technical expertise to evaluate interconnected risks. At Ascot, we participate alongside established lead markets and underwrite every project independently, which means asking for the commissioning plan, the equipment storage plan and the phased turnover schedule as underwriting documents. By addressing vulnerabilities earlier, this coordinated approach can help address lender requirements and provide greater clarity before construction begins.

Delivering that value requires looking past the headline perils. Labor is a good example. The shortage is well documented: roughly one in six Associated Builders and Contractors members is now under contract on a data center, a record share, and electricians remain the hardest role for contractors to fill. What gets less attention is labor quality. Water damage, the most frequent data center loss, and electrical faults at first energization often trace back to how well the work was done. Community opposition, which blocked or delayed an estimated $130 billion in projects in the first quarter of 2026 alone, adds schedule pressure on top.

Specialty insurers also rely on practice leaders with experience in power generation and heavy infrastructure to assess the project and its construction team. Because only a limited number of contractors can deliver modern hyperscale facilities, underwriters examine supply chain stability, labor management and quality control alongside climate, weather and engineering exposures. The resulting assessment helps determine whether the project’s design, construction team and risk controls can withstand local hazards and aggressive delivery schedules before significant capacity is deployed. With owners increasingly selecting key electrical and mechanical contractors themselves, that scrutiny has to extend beyond the general contractor to the trades building most of the value.

Modern data centers are the factories of the digital age, but their scale, concentrated value and overlapping construction and operations have moved them beyond the limits of conventional builder’s risk programs. Specialty insurers cannot eliminate the industry’s capacity constraint, but disciplined underwriting, customized coverage and an engineering-first approach can help them deploy available capacity more effectively, giving developers and lenders greater clarity about which risks can be insured, at what limits and on what terms.

Dustin Jones is Senior Vice President and Head of Inland Marine U.S. at specialty insurer Ascot Group.