The global construction sector is seeing an increase in data centre projects, driven by advances in technology and the projected demand created by artificial intelligence.
However, this growth is occurring alongside significant challenges, including skilled labour shortages and rising material costs, according to Willis’ Global Construction Rate Trend Report for Q1, published by WTW.
In North America, the labour shortage is pronounced, with estimates suggesting an additional 500,000 workers may be needed to meet current and future construction activity. Europe and Latin America are experiencing similar issues, while Asia is also reporting a lack of skilled workers.
As a result, many contractors and developers are relying more heavily on less experienced labour, which may impact build quality and adherence to safety protocols. Insurers are responding by taking a closer look at project timelines and cost projections when assessing risk and pricing cover.
In 2024, the construction insurance sector experienced notable developments influenced by economic conditions, market dynamics, and emerging risks.
Persistent supply chain challenges led to increased material costs and project delays, impacting construction timelines and associated insurance claims. Similarly, the industry grappled with a significant shortage of skilled labour, resulting in project delays and heightened labour costs.
An uptick in severe weather events also led to a record £585 million in weather-related insurance claims for homes and possessions, underscoring the growing impact of climate change on the sector.
Higher costs for construction materials are also influencing insurance pricing. Since premiums are often linked to project values, rising material prices have contributed to higher insurance rates.
The report notes that tariffs, particularly those affecting the cross-border movement of construction materials, are expected to add further pressure to cost structures. Outside the United States, regional economic conditions are playing a key role. In Asia, growth is supported by both public and private investment, especially in energy and infrastructure.
Australia's construction market is forecast to grow modestly, led by residential development initiatives tied to affordable housing policies. In Europe, the focus remains on sustainable energy transition, though labour shortages continue to be a concern.
The report also highlights regional developments in the construction insurance market. While pricing remains mixed, there are signs of softening in some regions and lines of business. For larger risks, quota-share arrangements are still widely used.
In Asia, the market is showing signs of recovery, with more favourable rates and terms for select risks. New legal developments are influencing policy wordings, particularly around LEG3 coverage, and natural catastrophe exposures remain a consistent underwriting concern.
Recent natural disasters are having a measurable impact on insurance dynamics. Wildfires in Los Angeles are expected to lead to insured losses between $32 billion and $40 billion, affecting over 16,000 structures. These events may result in higher insurance rates and reduced capacity for projects in California.
Rebuilding efforts are expected to place additional strain on labour and material markets. The report notes that this pressure could be exacerbated by trade tariffs, particularly if lumber supplies from Canada are affected.
In the builders’ risk and construction all risks (CAR) market, capacity is gradually returning, and rate increases have stabilised in some areas. However, underwriting remains cautious, especially in response to increased cyber risk.
As construction becomes more reliant on digital technology and AI, insurers are tightening cyber liability terms. Standard cyber policies often exclude bodily injury and property damage linked to cyber incidents, although limited cover may be available following detailed risk assessments.
Latin America is adapting its insurance offerings in response to long-standing exposures, such as natural disasters and political instability. Insurers continue to emphasise technical underwriting and require comprehensive risk data and clear descriptions of operations.
Demand for data centre construction remains high globally, driven by rapid digitalisation and the infrastructure required to support AI. This has led to a parallel rise in energy sector investment, as additional power sources are being explored to meet growing demand.
In some regions, this includes consideration of nuclear options, including Small Modular Reactors (SMRs). Renewable energy projects – such as wind, solar, and green hydrogen – also continue to attract capital, with insurers engaging actively in underwriting these evolving risks.
While market conditions vary by geography and risk class, the report underscores the importance of detailed underwriting and accurate risk information as insurers adapt to shifting demand in both construction and associated lines of cover.
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