Navigating Builders Risk in the Era of Data Center Construction

The commercial construction landscape in the United States is undergoing a seismic shift, driven largely by the explosive growth of data centers. This surge is not just changing the types of buildings being erected but is also transforming the builders risk insurance market. Insurers are now navigating a complex terrain where mega-projects dominate, necessitating innovative solutions and a focus on collaboration between brokers and carriers. Drew Cadelli, head of inland marine at CNA, sheds light on these changes, indicating a trend that leans heavily towards industrial construction rather than typical commercial builds.

For the first time, U.S. data center construction spending has surpassed $50 billion annually, accounting for approximately 2.3% of all construction spending nationwide, according to U.S. Census Bureau figures. This remarkable statistic underscores the growing significance of data centers, which have now overtaken traditional office buildings in terms of construction investment. Yet, amid this growth, total U.S. construction spending has seen a slight decline, falling about 1.4% in 2025. Despite this downturn, data center spending alone surged nearly 30% year-over-year in December, highlighting a narrow yet impactful concentration of investment in specific sectors.

The Shift from Commercial to Industrial Construction

Cadelli articulates a clear transition in the construction sector, noting that the focus has switched from commercial-oriented projects to a heavier emphasis on industrial construction, particularly in manufacturing and data centers. This shift has profound implications for the builders risk insurance market, which must adapt to the unique challenges posed by these large-scale facilities.

Implications for Insurers

As the scale of construction projects expands, so does the complexity of underwriting them. Traditional underwriting practices may no longer suffice when dealing with hyperscale data centers that can cost billions to construct. Cadelli emphasizes that insuring these massive facilities requires a collaborative approach among multiple carriers. The industry must work together to create solutions that adequately address both the scale of the projects and the potential risks involved.

The Role of Capacity and Risk Management

One of the most pressing challenges in the builders risk insurance market is the distribution of capacity among insurers. With the sheer size of these mega-projects, it's increasingly clear that a single-carrier solution is insufficient. Cadelli explains that the industry is evolving towards a model of shared risk, where primary insurance carriers assume lower-end risks while project owners take on higher-end risks. This arrangement fosters cooperation, allowing carriers to assemble large-scale programs that can accommodate the financial demands of substantial construction projects.

• Risk Sharing: Owners often accept top-end risks, while insurers cover lower-end risks.
• Collaboration Required: Multiple carriers must work together to provide adequate coverage.
• Capacity Concerns: Insurers remain cautious about exposure in high-risk areas.

Natural Catastrophe Exposure and Underwriting Discipline

Natural catastrophes represent a significant concern for builders risk insurers, particularly as the frequency and severity of such events increase. Cadelli highlights that carriers are implementing stringent underwriting disciplines to avoid being overexposed in any single location. This is particularly relevant in areas prone to natural disasters, where the potential for loss is significantly heightened.

Labor and Supply Chain Challenges

Labor availability is another critical factor influencing the construction of data centers. Cadelli points out that data center projects are currently consuming nearly 100% of the labor supply in many regions, which can leave other types of construction projects struggling to find workers. Fortunately, he has not observed a significant delay in data center projects, although he warns that supply chain issues—particularly concerning specialized equipment—could pose a greater risk to project timelines. Components like chillers, turbines, and chips are often in high demand and may be allocated for two to three years ahead, creating a bottleneck that could lead to delays.

Future Trends: Energy Infrastructure and Beyond

Looking ahead, Cadelli anticipates that the next wave of construction investment will likely focus on energy infrastructure. As more data centers are built, there will be a growing need for updated energy systems to support them. He suggests that energy infrastructure could mirror the current data center boom, presenting both opportunities and challenges for builders risk insurers. As projects become increasingly capital-intensive and often government-backed, insurers must remain agile to accommodate this evolving market landscape.

Key Takeaways

• The builders risk insurance market is transitioning towards industrial construction, particularly data centers.
• Collaboration among multiple carriers is essential to manage the risks associated with mega-projects.
• Natural catastrophe exposure and labor availability are critical factors influencing underwriting practices.
• Future construction trends may include significant investments in energy infrastructure to support data centers.

Frequently Asked Questions

What is builders risk insurance?

Builders risk insurance is a type of property insurance that provides coverage for buildings under construction. It protects against risks like fire, theft, and certain types of damage during the construction process. This coverage is crucial for contractors, property owners, and developers, as it helps mitigate financial losses associated with unforeseen events.

How is the data center boom affecting builders risk insurance?

The data center boom is shifting the focus of builders risk insurance from traditional commercial projects to large-scale industrial construction. This transition requires insurers to adopt collaborative approaches to underwriting, as the scale and complexity of these projects exceed what a single carrier can cover. The risks associated with mega-projects necessitate innovative insurance solutions that can accommodate shared capacities among multiple insurers.

What are the main challenges facing builders risk insurers today?

Builders risk insurers are grappling with several challenges, including managing natural catastrophe exposure, labor shortages, and supply chain issues. As construction projects become larger and more complex, insurers must ensure they do not overexpose themselves to risk in high-hazard areas while also addressing the labor demand generated by data centers. Additionally, supply chain bottlenecks for critical equipment may lead to construction delays, further complicating the insurance landscape.

What does the future hold for the builders risk insurance market?

The builders risk insurance market is expected to continue evolving in response to changes in construction trends. As investments in data centers and energy infrastructure rise, insurers will need to adapt their underwriting practices and risk management strategies. The emphasis on partnerships among multiple carriers will likely remain crucial, as the industry seeks to provide adequate coverage for increasingly complex projects.