Mike Hergott was asked what the biggest mistake clients make on large construction projects. His answer was not what most people in the room expected.
"I don't think it's buying too little insurance," said Hergott, SVP and national practice leader for construction at Gallagher, at a recent Insurance Business Canada construction insurance power panel. "I think it's assuming the budget that you've created is going to be sufficient and static in supporting what is going to develop on this project."
That reframing matters. The under-insurance conversation in construction is typically about limits - whether a client has bought enough coverage relative to project value. Hergott's argument is different. The problem is not the coverage level at inception. It is the assumption that the project will cost what it was expected to cost, and that the insurance program calibrated to that expectation will remain adequate as conditions change.
On a data centre construction project that runs three to five years, that assumption is not conservative. It is dangerous.
"We've got long lead items. We've got uncertainty around the globe right now with supply chain challenges. We've got labour mobility and challenges that way, shortages," Hergott said. Each of those variables can move a project's cost materially. Tariffs on imported electrical components and server hardware add procurement cost unpredictably. Labor shortages push up wages and extend schedules. Long-lead items - the transformers, cooling systems, and backup power equipment that define a data centre's operational capability - can see delivery timelines extend by months, changing both cost and coverage timing.
What changes when a project's cost rises is not just the budget line. It is the relationship between what the project is worth and what the insurance program covers. A builder's risk policy set at $800 million for a project that ultimately costs $1.1 billion is not providing 100% coverage. It is providing 73% - and the gap is uninsured loss at precisely the moment a claim would arrive.
The COVID cycle made this visible in ways the market has not forgotten. "We all remember COVID," said Todd Henderson, SVP of Aon's construction and infrastructure practice. "It wasn't that long ago, and we saw the significant rise in cost inputs, labour inputs at the time." The cost spikes that followed were not predictable from a project budget set at financial close. They were the product of conditions that emerged mid-project - which is exactly the scenario a living insurance-to-value process is designed to catch.
Supply chain shocks, material cost spikes, labour cost inflation - these are not once-in-a-generation events. They are recurring features of the construction landscape that the current data centre boom is amplifying.
Both panelists are aligned on what the response needs to look like - and it is a process change, not a coverage change.
"Insurance to value is becoming more an active project management task and routine activity," Hergott said. "It's not an annual kind of, 'Okay, are we okay? Are we online here?' It's a living document. It's a living process. We have to be adapting to what's transpiring."
What that means practically is a structured review process that involves the right people across project management, finance, procurement, and insurance - not a periodic check-in, but a defined cadence with clear accountability. "Have we got everybody involved that understands this and have committed to that process?" Hergott said. "It's not a once and forget it. It's an ongoing discussion."
Henderson frames the goal in terms of awareness upstream. "Projects go into it eyes wide open. And whether that results in an insurance transfer or not, there may be other ways to address it via budget, via cost, via contract allocation. But provided that they're aware of it sufficiently enough upstream to be able to deal with it."
One point Hergott makes that deserves emphasis: the dynamic monitoring process is not simply a mechanism for increasing limits. Over a multi-year project, some cost components may fall. Manufacturing processes improve. Delivery methods change. Technology advances reduce replacement cost for certain equipment categories.
"We could have technological advancements that bring down some of the replacement cost components. We could have some changes in the way things are manufactured, delivered, transported. So it's not going to be just an upward to the right discussion."
The goal is not to mechanically increase limits every quarter. It is to maintain an accurate picture of what the project is actually worth at each point in its lifecycle - and to ensure the insurance program reflects that picture, in either direction.
The broker's role in that process goes beyond placing coverage. It means maintaining an active presence in the project's cost conversation, raising the insurance implications when project variables change, and ensuring that the team managing the budget understands what changes in that budget mean for the programme.
"I'm really more about understanding the story of the project," Hergott said. "How are we going to tell this story? How are we going to understand all the different components - and understand how that translates to our project?"
The clients who answer that question well will be insured to value throughout the life of their project. The ones who don't will find out at the worst possible moment that the budget they set at the start was never going to be the budget they needed at the end.
