Think about the end-to-end risk cycle of a data center's construction phase and some of the insurance considerations.
There's stock throughput coverage spanning transit through storage and installation. This needs to be coupled with robust offsite storage limits and well-structured builder's risk. Then there's delay in start-up (DSU) coverage to reflect true replacement timelines.
Yet despite the inherent complexities and capacity challenges, the high-quality build and cutting-edge technology involved makes data centers such an enticing proposition.
The appetite for these risks has always been strong. And as Jodi Harper, Data Center operations director, Gallagher, reminds us, "Effective protection requires a continuous insurance approach."
Key takeaways
- Power source. Being connected to the grid means you have an alternative power source. If your power facility goes down, you've got that added flexibility.
- Supply chain. From shipment to storage, a number of risks surface. If not addressed and identified, this can lead to coverage gaps and financial losses.
- Location. The sites that work best for data centers tend to present geographic dangers such as wildfires, earthquakes, floods and severe convective winds.
- Capacity. The convergence of data centers and large real estate projects at a single site creates additional infrastructure and power generation exposures.
Power determines design and location decisions
Data centers require significant power requirements and need reliable power.
But it can be a tricky balancing act, as over-reliance on grid power for a huge GW-plus project can narrow options. This is why developers and investors are prioritizing locations with clear utility alignment, transmission capacity or viable alternative power options — even if that means higher upfront costs or less traditional geographies.
As Michael Hogue, Energy managing director, Power, Utilities & Renewables, Gallagher, explains, "If the only power source is behind the meter, this creates a unique risk. And if you bypass the grid and your power generation facility goes down, there's limited ability to source alternative power through the grid. So you lose that flexibility."
Site selection and risk modeling are critical for:
- Establishing the locations with access to grid reliability and backup power sources
- Alerting to emerging catastrophe zones, helping developers understand the probability of severity losses over time
"Data center design is now driven first by power density and speed-to-power," says Jodi Harper, director of Data Center Operations at Gallagher. "Power availability is increasingly dictating site selection, making power strategy one of the largest uninsured or underinsured risk vectors in data center development."
Supply chain vulnerability and risk management
Data center boom: Construction risks*
- Fire and water
- Builder's risk coverage gaps
- Completion delays
Discover the other 8 in Gallagher's 2026 data construction report.
Transformers, switchgear and GPU arrays are just some examples of the large dollar amount import shipments from overseas needed to power a data center. The equipment needs to be stored, and often that's in third party facilities.
Spending extended periods in transit and storage pre-installation can be an underappreciated risk exposure. As Trevor Gilstrap, Energy managing director, Oil & Gas, Gallagher, notes, "That in-between period can be a blind spot. The equipment may be physically owned by the project but not yet covered as installed property."
There are other factors to consider too, such as natural catastrophes, fires and other potential incidents that could cause severe damage to equipment. This additional risk must be factored in, as it can add complexity considering the concentration of high-value equipment that is waiting to be set up.
Being able to source alternative suppliers is also important from a supply chain risk management perspective. "If lead times become an issue, the ability to switch suppliers when necessary is critical to ensure continuity and mitigate risks," says Hogue.
Nuclear 'verdict'
Risk reassurance: Five factors to consider
Aligning site, design and insurance structure early will help make the risk financeable and insurable on predictable terms.
Here are some factors to consider for data center projects:
- Ensure you have the right coverage. Recognize that power-integrated facilities introduce new exposures that don't fit neatly into traditional property policies.
- Conduct risk modeling and engineering reviews. Designing a facility with an optimistic view of hazard resilience can prove very costly.
- Have a backup plan. Power strategy is now one of the largest uninsured or underinsured risk vectors in data center projects.
- Be clear on responsibility. Traditional construction risk assumptions don't always apply to newer generation technologies.
- Prevent claims turning into disputes. Contractual clarity around title and risk transfer is crucial.
