As the foundational infrastructure for today’s digital economy, data centers pose exacting standards to stakeholders at each phase of development. And in today’s AI‑powered world – as energy constraints tighten and regulation evolves – risk expands across every stage of the data center lifecycle.
Data center owners and developers face significant financial, legal, and reputational consequences if standards slip at any point. As such, risk management, which includes engaging with the insurance market, must be a key consideration.
The following framework explores the key phases of a data center development arc, and how Lockton applies our unified risk‑solution architecture to help clients move faster, de‑risk major capital decisions, and build resilient, scalable capacity.
1. Business case
Each project begins as a strategic vision. The business case for a data center requires financial modelling and a strategic plan that defines the feasibility, valuation, and operational success of every development. Businesses should seek to prioritize projects that can reliably offer users a dependable power supply, low latency, high speeds, and uninterrupted performance – even during peak-demand. Early identification and comprehension of risk factors is crucial for facilitating successful contractor negotiations, attracting financiers to the project, and optimizing the results of insurance procurement.
How we support you at the business case stage:
D&O liability risks in capital raises
Risk analysis and contractual risk‑transfer strategies
Lender financing and insurance compliance advice
Power‑procurement contractual and counterparty risk
Transactional insurance considerations, including environmental, tax, representations, and warranties
2. Site selection
As geographical location is a crucial factor in the long-term stability and performance of a data center, site selection requires careful deliberation and sound risk mitigation. Choosing a site is no longer just about land, connectivity, or water – it is vital that grid capacity, deliverability, and long‑term reliability are also carefully researched. The likelihood of natural disasters, such as earthquakes, floods, and hurricanes, is a key risk, as well as regions with extreme temperatures or high humidity levels. To minimize latency, data centers should be located close to the businesses and users they serve. Locations in tier-1 cities, can offer strong connectivity and access to a wide talent-pool, but this will need to be balanced against cost implications.
How we support you at the site selection stage:
Due-diligence reviews
Weather and catastrophe modelling
Grid and interconnection risk solutions
Preliminary insurance strategy and placement including early-works coverage
3. Design
As designs move from conceptual to detailed engineering, risks can begin to crystallize. Safety is an integral part of data center designs, and proper mitigation should be given toward fire and electrical risks, as well as structural integrity. Developments must comply with local industry and regulatory standards as failure to adhere invites legal risk, impacts client trust, and hinders developers’ ability to secure financing and insurance coverage. It is also prudent to consider scalability and future expansion potential as demand increases – eliminating disruption, costly overhauls, or relocations.
How we support you at the design stage:
Insurance specification and contract alignment
Contractual reviews of PPAs, SLAs, and MSAs along with optional insurance solutions for liquidated damages and downtime‑related exposures
Architect and engineering professional liability
Technology performance warranty backstop insurance
4. Procurement
Supply chain disruptions can increase costs and extend timelines. For long‑lead equipment, such as transformers, switchgear, generators, and chillers, this creates significant exposure for developers. Typically, this equipment is in high demand. In the event of loss or damage, replacements can take a considerable amount of time to procure, transport, install, and commission. Adopting a proactive approach toward procurement enables developers to protect both budget certainty and schedule reliability.
How we support you at the procurement stage:
Marine, cargo, and inland transit risk solutions including resulting financial loss due to unexpected delays
Counterparty default risk strategies
Bonding solutions for performance, interconnection, or PPAs
5. Construction
Typically, the most capital‑intensive phase, successful construction delivery requires close collaboration from multiple, sophisticated stakeholders to meet the expectations of private equity investors, lenders, public sector stakeholders, and customers. Plans and processes need to be carefully refined as data center tenants often operate in multiple regions and expect similar service quality levels across the world. A suitable risk management process, with insurance protection against events that could derail timelines, will pave the way for a smooth program delivery and achieving the desired ‘Ready for Service Date’ (RFS).
How we support you at the construction stage:
Construction‑all‑risk programs
Delay‑in‑startup (DSU) and cost‑overrun insurance
Environmental, political, and terrorism exposures
Options for owner-controlled or contractor-controlled insurance programs depending on project characteristics
6. Commissioning
Commissioning introduces unique risks within the data center life cycle as assets transition from construction to operation, often shifting responsibilities and involving partial occupancy. Safety concerns may be overridden by availability targets during this stage – posing systemic risk. As systems are – for the first time – being energized, tested, and operated in temporary or incomplete configurations, risk of fire, control system failures, or mechanical and fuel system failures, become pronounced. To reduce incidents at this stage, fully tested emergency systems are critical.
How we support you at the commissioning stage:
Efficacy and system performance risk
System‑level and integrated testing
Latent defect risk
Transitional insurance considerations as phases of the project achieve completion
7. Operations
Once operational, the focus shifts to uptime, maintainability, and monetization. As availability pressure increases, it is essential maintenance isn’t ignored. Equipment must be readily serviced, replaced, and upgraded as required to minimize outages and ensure the data center remains safe. Risks that could result in system or mechanical breakdown and cyber-attacks must have appropriate mitigation to decrease the possibility of outages. For data centers to continue to be profitable, both capacity and energy must be utilized efficiently.
How we support you at the operation stage:
Conventional property & casualty insurance strategic program designs
Business interruption coverage
Mechanical breakdown risk
Power‑outage and electrical‑failure risk considerations
Operational technology cyber risk coverage
Management liability insurance programs
A fully aligned risk framework
Every stage of the data center lifecycle introduces unique, interdependent risks. To help developers, hyperscalers, and investors build with confidence, we help clients forge holistic, future-ready strategies that are resilient, insurable, and financially sound.
To achieve this, we work on a cross‑functional basis, involving teams from our energy, construction, cyber, and technology practices to provide innovative insurance and non‑insurance risk transfer solutions.
For further information on how we can support your data center throughout its lifecycle, please visit our Data Centers (opens a new window) page, or contact a member of our team.