Australia is in the middle of a data centre construction boom, even as the rules governing the industry are being tightened. Prime Minister Anthony Albanese has pledged that the “next generation of large-scale data centres” will need to “underwrite new power supply”, pay their full share of grid connection costs and become net-generators rather than net-users of energy. The government's planned “triple lock” standards will also require new projects to fund network costs and improve demand flexibility as the government pushes to ensure Australia leads in AI rather than simply hosting it.
Industry group Data Centres Australia supports a single national standard, but says details still need to be worked through, particularly around responsibility for operators and their customers. Greens Senator Sarah Hanson-Young has called for a moratorium on new hyperscale approvals “until we get the regulatory settings right.”
With around 160 existing data centres in Australia and another 90-plus on the way, the scale of the market is changing rapidly. Individual sites can exceed $10 billion in value, while many of the largest developments are multi-stage campuses that continue expanding for years after the first data hall is completed. Globally, capital expenditure on data centres is expected to reach $7 trillion by 2030, according to McKinsey. Rajat Rana, a partner at global law firm Quinn Emanuel Urquhart & Sullivan, described the investment on CNBC as “the largest peacetime investment project in human history.”
For insurers, a key underwriting consideration isn't just project size or any particular peril – it's how rapidly exposure scales during construction, says Stevan Bonic, Underwriting Manager Engineering, Australasia at HDI Global. “The main difference is the speed at which they can construct very high-value assets compared to standard commercial or residential builds,” he explains.
Where a single warehouse-style facility was once the norm, insurers are now dealing with sprawling campuses that can expand rapidly. “Asset accumulation is one huge factor that insurers have to understand and deal with. And it can significantly affect capacity,” Bonic says.
That makes it important to look beyond the building immediately being insured. HDI encourages clients and brokers to discuss the full life cycle of the development early – not least because financing terms are often locked in before the insurance conversation properly begins. Bonic points to a project recently underwritten at $3 billion that has since expanded to $10 billion as the campus grew from two halls to six.
Fire remains a primary concern, particularly as data centres incorporate large diesel backup generators and increasingly extensive lithium-ion battery energy storage systems (BESS). Operators have little tolerance for downtime, making resilience critical.
The greatest risk period, according to Bonic, is often testing and commissioning, when substations, transformers and switchgear are powered up and run at full capacity.
Prefabricated modular construction adds further complexity. Bonic notes instances of systemic defects in components – such as cooling pipework – that went undetected until systems were commissioned, by which point hundreds of identical units were already installed across a campus.
Water risk also gets overlooked, says Ben Mollee, Risk Engineering Manager at HDI Global, who has surveyed more than a dozen sites over the past two years. “Potential water damage exposures remain inadequately addressed during the construction phase,” he says, citing gaps in formal water management planning, leak detection, and automatic isolation. The shift toward direct liquid cooling adds further commissioning exposure, where water quality issues can cause equipment damage and costly rework.
Mollee also flags a trend reshaping fire risk: campus density. “Increasing data centre campus density is resulting in reduced building separation distances, which increases the potential for fire spread and accumulation risk.”
There is also a basic distinction easy to miss when looking at headline values: construction cover usually refers to the “warm shell” – the building, utilities and infrastructure – rather than the servers, racking and GPUs running AI workloads.
Coverage requirements also shift as a project moves from construction into operation. Jonathon Willoughby, Senior Engineering Underwriter for HDI Global, notes that Contract Works and Operational Property policies are “two distinctly separate policies.”
During construction, underwriters evaluate the quality of the contractor, complexity of design and construction methodology as well as testing and commissioning activity. Once operational, the focus shifts to asset values, fire protection, maintenance standards, redundancy, business interruption, and overall operational resilience.
“The goal is to make sure there are no gaps or unintended overlaps in cover, particularly during testing, energisation, commissioning and any phased occupation of the asset,” Willoughby says.
The same change in perspective applies to capacity. For a new data centre campus, HDI does not determine its capacity solely by looking at the contract value of the stage currently being underwritten. A key consideration is accumulation risk: the total exposure to a single event across the campus.
When a campus consists of one or two halls, exposure is relatively contained. At this early stage, HDI is assessing the quality of the contractor, complexity of design and construction methodology, and natural catastrophe exposure such as storm and flood risk, to determine the risk profile of that project. But as projects scale, the calculation changes. “As the campus expands from two halls to six, the analysis changes and we start looking at the campus as a single exposure rather than a collection of individual projects,” Willoughby says. Shared infrastructure – substations, cooling plants, fuel systems, and utility connections – creates single points of failure where one incident affects several halls simultaneously.
At a certain point, total accumulation becomes the governing consideration over individual stage value. “Ultimately, we're not just asking whether we like the next stage; we're asking whether we're comfortable with our total exposure if a catastrophic event impacts the entire campus at once,” Willoughby says.
The scale and speed of these developments make early involvement essential. HDI’s Australian team underwrites projects locally but also has direct insight into global loss trends.
Decisions made during design and pre-development can mitigate risks that become expensive to fix once contracts are signed and equipment is installed. “Data centres are designed to be highly resilient and security-focused facilities because operational downtime triggers massive business interruption and liability exposures. Ensuring reliable power supply, cooling performance, fire and smoke mitigation, and water management remains paramount,” Bonic says.
For operators, developers and investors, early collaboration between insurers, brokers, risk engineers and project teams can help improve resilience, manage accumulation exposures and support long-term operational reliability. As data centre development accelerates across Australia, combining specialist underwriting expertise with risk engineering insights becomes increasingly important.
This article was created in partnership with HDI Global
