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Ensuring resilience: The role of insurance in data centre construction

The article highlights the vital role of comprehensive insurance in managing risks and ensuring stakeholder confidence in complex data centre construction projects.

23/06/2025 · 5 minute read

With the complexities and inherent risks involved in building data centres, having a comprehensive insurance strategy is essential for safeguarding your investment and ensuring project success. Contact our experts today to discuss how they can help support your businesses future development.

Data centre construction is often an inherently complex process, with ultra-high-tech requirements and exacting standards set by incoming customers.

Regardless of their location, projects involve intricate planning and coordination among multiple stakeholders, including contractors, lenders, and customers. The contractual negotiations can be complicated and arduous.

The rolling schedule of sectional handovers creates risks of potential disputes, liabilities, and increased costs that need to be carefully managed to mitigate the developer from potentially facing a financial precipice.

Insurance is integral to each of these contracts and can be the deciding factor in persuading the stakeholders to sign on the dotted line. It offers each party peace of mind, so it’s important the developer has a comprehensive and seamless insurance programme in place from the project’s inception. This programme should strike the ideal balance between risk transfer and mitigation to protect the developer against risks that could endanger the projects and their own future.

Sectional completions

The huge demand for more processing power means that data centres need to be up and running as quickly as possible. Customers often expect data halls to be operational long before the entire facility is completed, meaning construction may still be ongoing in other parts of the data centre while live servers are in place. This phased approach can be financially advantageous for developers, it can also create potential liabilities if the data halls or the servers within them are damaged by contractors completing other parts of the data centre.

Contractors will understandably worry about the liability implications of damage to or interruption of the handed over elements and server transition, as contractors often push to limit their exposure to such risks.

To address these concerns, it is essential that appropriate insurance and indemnity limits are considered between the parties. If these parameters are not established accurately, either the developer or the contractor may face significant liabilities, potentially leading to protracted disputes or financial repercussions that could adversely affect the business operations of the parties involved.

Future-proofing the project

At the outset of a data centre project, unknowns may present challenges for both developers and stakeholders. Timelines, costs, and resource availability may be unclear, making it crucial for developers to adopt a proactive approach to risk management and insurance.

Construction often occurs in phases, each involving different contractors, one for the substation, another for the data centre shell and core, and possibly another for the fit-out. There are often many contractors working closely on the same site, often in proximity to the customer’s servers. The establishment of a “hold harmless” environment can be challenging. The developer can help mitigate potential conflicts through a well-structured insurance strategy.

Additionally, a developer may not have an agreement fully finalised with a customer when construction begins. Developers may be operating under a letter of intent or have only partially secured tenants, hoping to attract additional customers while the data centre is being built. Customer contracts can often be complex, particularly regarding termination rights. Therefore, when procuring insurance, it is important for developers to share as much information as possible with insurers about their proposed tenancy model. This transparency ensures that the insurance can respond appropriately when needed, aligning coverage with the specific risks and requirements of the project.

Navigating financial risks in data centre development

External financing for data centre projects is a common practice, but it can introduce further challenges.

While construction insurance, including construction all risks and delay in start-up coverage, are just one part of the agreement between a developer and their lenders, they can significantly impact the deal’s closure. Some risks raised by the lenders may not have been considered by the developer during the planning stages, especially if they self-funded the initial construction phases. Without comprehensive insurance in place from the outset, developers could be left scrambling to find the protection to satisfy their lenders and ensure timely project completion.

Moreover, some data centre projects have grown so large that they exceed the available risk capital available in the insurance market. This can create challenges for developers, as lenders typically require insurance coverage for the project’s full contract value during construction and into the operational phase. Marsh can help developers navigate these challenges by maximising available insurance capacity, negotiating with lenders’ advisors, and providing estimated loss assessments that will support the developer’s position.

There is no one-size-fits-all insurance solution for data centres. However, in recognition of the challenges discussed above, Marsh are pleased to have recently launched Nimbus, a new insurance facility providing clients with comprehensive cover for the construction of large-scale data centres. The solution combines construction and operational insurances, addressing head-on the sectional handover headaches that Data Centre developers have been facing.

Our people

Kate Fairhead

Kate Fairhead

Senior Vice President, Construction, Marsh Specialty

  • United Kingdom

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Esmee Mitchell

Vice President, Construction, Marsh Specialty

  • United Kingdom

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