0:00 I don't think it's buying too little insurance. I think it's assuming the budget that you've created uh is going to be sufficient and static.

0:07 We had 10 billion US dollars and in capacity raised for a data center in the US. It had 75 insurers on the slip.

0:16 Hello everyone, welcome to insurance business TV and welcome to our construction [music] insurance power panel where we take a look at the latest market developments.

0:24 This time with a particular focus on data centers. And joining us this time around, we have standing in for Chris McClean, Todd Henderson, senior VP

0:32 construction and infrastructure practice at AON. And also making his debut, Mike Hurgot, senior vice president and national practice leader construction at

0:41 Galaga. Uh so welcome both. And and let's start with of course one of the industry's hottest topics. data center and I AI infrastructure projects are now

Chapter 2: Insuring billion-dollar data center projects

0:50 routinely exceeding $1 billion in Canada with some global insurers warning that capacity can't keep pace at the largest

0:58 end. So Mike, how are you structuring placements for projects that exceed what the traditional market can absorb. Yeah,

1:06 I think it's a great topic. Um these aren't just technology projects anymore.

1:11 uh they're massive construction power risk transfer discussions that need to take take place very much earlier and as

1:18 you pointed out I've have routinely crested over a billion dollars and um significantly larger than that. Um my

1:27 perspective here is that the visibility on the project is very important and not necessarily that the capacity becomes a

1:34 complete challenge to us but it's how we engage the markets a little bit more engineered in terms of the approach to

1:42 engaging the car carriers um establishing the terms looking at domestic and international capacity and

1:49 ultimately looking at some of the actual risk that we're trying to manage that could change based on the stakeholders and the people involved in the project.

1:58 So the capacity really becomes a discussion much earlier um and can actually become a different one

2:07 altogether from a traditional builder's risk placement. There's opportunities for more PML, more discussion around how we want to align the capacity and engage

2:15 the market appetite here. And I really don't see um a significant challenge in terms of the Canadian marketplace at this point.

2:26 Okay. And and from your perspective, obviously um Mike brought up a capacity there a couple of times, Todd. From your view, is is capacity actually an issue in the market?

2:35 Yeah. Hi Paul. Um no, I I don't think so. Not necessarily. Um you know, $1 billion data center project is really at

2:43 the smaller end of the scale of what we're seeing. um under our program where I work at AON, um we've got $5 billion

2:52 US capacity um for data center projects. Um and in fact, we were there was one we profiled recently at a conference in London back

3:00 in June where we had 10 billion US in capacity raised for a data center in the US. It had 75 insurers on the slip. So,

3:09 um the capacity is there. Uh it does have to be presented to markets though in a way that makes sense. um those

3:16 studies that uh Mike mentioned around um maximum loss uh properly engineering it properly understanding the technical

3:24 risk and such and presenting that to markets in a way that makes sense for for what is you know what are mega projects is is key to success in

3:32 obtaining that capacity of course hyperscalers are reportedly self-insuring gaps through captives when

Chapter 3: Hyperscalers, captives and self-insurance

3:39 coverage cannot be found uh Todd from your perspective is that risk transfer shift something that Canadian brokers and insurers are seeing directly or is it still mostly a global phenomenon?

3:50 Yes. So, so far it's not something that we've seen per se, but that doesn't mean we won't in the future depending on the

3:58 particular clients, particular developer involved. When when it gets to very large projects such as these, um it

4:06 reminds me a bit of the go- go years in oil and gas in the early 2010s. I was working for a global EPC contractor at

4:13 the time and the scale of the projects then were you know refinery projects of 8 billion 10 billion US these are similar in scale what we're talking

4:22 about here and what the super majors used to do in oil and gas was for them risk transfer was a question of what's the most efficient use of use of my

4:31 capital so question of cost of capital and we're seeing that too with some of these major tech firms with these very very large very robust cash heavy

4:38 balance sheets as well as the sophistic ation to understand when they want to retain a risk and when they want to to transfer it. Um, and it's usually going

4:46 to be some combination thereof. But I expect that when when when a certain player when certain players come into the Canadian market, there will

4:54 absolutely be a captive play. But it's really up to them and their own risk uh risk appetite and capacity to self-insure.

5:01 Yeah. And let's just zoom in again on on the Canadian market if we can. Mike, do you think that it's it's mainstream here or or not?

5:07 Emerging at best. very very early um particularly because of the players involved and the the parties in behind

5:15 uh these mega projects. I think there's going to be an extensive capital structure exercise that is going to be conducted. It's going to have to

5:23 consider who our stakeholders are, what the end use of this product is, how how it fits in with our cost of capital as

5:31 the developer or the project owner. And ultimately I think there might be participant layers where there's a

5:38 certain risk that makes sense but for it to be solved completely by a captive uh with some of the mid market players that

5:47 will be participating in in these projects I really don't see that as a mainstream Canadian development at this point in time. And Todd mentioned maybe

5:55 in the future for sure depending on how technology changes how the participants land in any given deal. I think it's

6:02 just going to be as I mentioned a real study in the project specifics to understand where we might deploy some of

6:09 our traditional or alternative risk transfer techniques.

Chapter 4: Hail, wildfire and secondary perils

6:14 As these data centers are kind of popping up everywhere, they are increasingly being cited in areas that are exposed to to secondary perils of

6:21 course like hail, wildfire, severe convective storms. Mike, from your perspective, is that changing appetite and and risk engineering requirements specifically for this asset asset class?

6:32 I wouldn't say that appetite is changing. I think it's more an eyes open exercise. Um I think it was a Swiss re article I was reading not too long ago

6:41 where it was talking about, you know, 40% of the US data center capacity is within a a strip that they would call a

6:48 high hail zone, right? Um and so yeah, there are going to be these opportunities. But I think the way that

6:55 we get to solve those or the way we bring the insurers to get comfortable with that is talking more about the

7:03 resiliency of the project. What we're going to be doing to mitigate some of these challenges and wildfire is on a lot of people's mind right now, right?

7:11 Do we have any ability to isolate or or sty that development uh towards our our site? And you have to remember the footprint of these projects are quite

7:19 large. There's going to be their own ability to kind of have active management as well as passive management

7:26 to to protect themselves from these types of things. So for me, I don't see it as a constraint, more something again that has to be picked up, examined

7:35 closely, underwritten, communicated, and talked about early enough in the project.

7:42 Yeah. And of course, Todd, data centers might be relatively new, but these are not new issues, are they?

7:49 No, I don't think so. These are these are the types of things that insurance and project teams and risk assessments have been grappling with um for for

7:57 years. So, no, there's nothing really new under the sun here. And you know as it relates to data centers specifically and market capacity when we you know we

8:05 look at what's happened in the US where for a time there the main data center locations were that northern Virginia so

8:12 suburbs of Washington DC I think they call it data center alley now saturation and you know lack of um maybe social

8:21 acceptance on more of these things has pushed a shift and now we're seeing them built in the US sort of a corridor from kind of Minnesota down through to Texas.

8:29 Now that whole vertical there is is quite exposed to storm to hail tornadoes such like that. But yet we're still seeing market capacity willing to

8:37 support a data center buildout in that corner. So I don't see that being any any different necessarily from what's going to happen in Canada.

8:44 And and beyond the the hypers scale players, Todd, is the data center boom trickling down to subcontractors and smaller players on these projects in a

Chapter 5: Subcontractors, labor and new opportunities

8:52 in a way that's perhaps creating a new commercial opportunity?

8:56 Yes, I I think so. We're certainly seeing a lot of interest from the trades and the design consultants in the data center projects that we're looking at.

9:04 Um it will I think though create a strain on labor availability. For example, um in Quebec where I live, we

9:12 are already have a bit of a shortage of skilled trade labor and that you know on a 23 billion data center project is

9:20 likely to act as a kind of a gravitational pull pulling more workers into that. So then we wonder what will happen with for example our more routine

9:29 kind of infrastructure buildout construction of schools renovations of schools and such like that and what will that look like but um yeah it's there's

9:38 definitely there's definitely opportunities I think it's worth mentioning too for contractors looking to build out their own portfolio the fear of missing out I don't think anyone

9:46 will want to be sort of 3 four years down the road without having at least one or two sort of data center mandates on uh on their own portfolio of of work

9:55 accomplished you know, assuming that the the builder continues and it's and it's a market they want will want to pursue.

10:01 And and Mike, you know, obviously Todd raised that the trade issue there. Do you think it's it's focused on any specific trades?

10:08 I I think it's going to expand from what people are going to come to to the top of their mind first, whether that's, you know, electrical, the the the data,

10:16 cabling, and things like that. There's going to be a very significant slowdown.

10:20 Of course, the headline numbers make the news, right? billions of this and billions of that, but there's so many tiers of subcontractor

10:28 coordination that is required for that and specialization within each kind of scope or division. And so there's going

10:36 to be a ton of civil and road requirements just because these are such large footprints. We need to build in most cases an energy uh source, right,

10:45 for this for this center. And ultimately there's going to be all sorts of specializations within those divisions of work. So there definitely will be a

10:53 slow down. I think to Todd's point, yeah, there is going to be a little bit of people looking to make sure that they're building their resume or making

11:01 sure that they can talk to this expertise and and gaining it and and create some pressure. That upward mobility, let's call it, will come at a

11:10 cost. Uh we we talked a little bit about or you heard so far about labor shortages. Where will all the people come from to staff these projects and

11:18 keep them on schedule? And when we have some of our subtrades taking on larger projects than they're used to, that

11:25 becomes a new new consideration. And and where we're talking and seeing some development is what risk is hidden in the performance of our contractors.

11:34 Instead of just thinking about how we're going to structure the insurance program, the limits we buy, the apparel we're covering, what are we doing from

11:42 an actual ability um to get the job done? So, how are we looking at that from our performance exposure with the contractors that are

11:50 hired? And I think that will be an interesting um time will see, time will tell. We see this when there's been various booms over the construction industry and and certain development.

12:00 There's a mobility of labor certainly, but there's not an indefinite pool of that. And when we get strained, when we have people maybe pushing a little bit

12:08 further than they they otherwise would have, we do see quality concerns generally follow that. And so those quality concerns could be something

12:16 lurking around the corner here, particular how these end assets are utilized and how resilient you need to

12:24 be. So J, I just want to ask you a general wrap-up question if I can. With construction costs still climbing and tariff deadlines looming through mid

Chapter 6: Insurance to value and cost escalation

12:33 2026, are builders risk valuations and insurance to value keeping pace or are clients underinsured perhaps without

12:40 realizing it? Uh, what do you think, Todd?

12:43 Sure. well underinsured without realizing it. We would certainly hope not. um for mega projects like this, you

12:51 know, the the risk register, the risk analysis function is super important and not not

12:58 as a static exercise but as a living exercise and a living document as project uh goes from development phase

13:06 to implementation as as it evolves to keep track of of of of various risks including risk of of cost overrun and

13:15 cost increases. I think as a market we're we're pretty used to it. I mean we all remember co it wasn't that long ago

13:21 and we saw the significant rise in cost inputs, labor inputs at the time which brought up interesting discussions

13:29 around using you know hedging tools and instruments as proxies for finished goods um going into projects.

13:38 But and and then you know from a placement point of view we always try to build our policies in a way that take into account cost fluctuations cost but

13:47 there's always cost changes on any on any very large project. So it's something that we're used used to but overall a project that is properly doing

13:56 its proper risk assessment is probably most of the time going to do a pretty good job of of capturing these types of things. And the point important thing

14:04 for me I think is that 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

14:13 via budget, via cost, via contract allocation, but provided that they're aware of it um sufficiently enough

14:20 upstream to be able to deal with it and also to deal with these things as they emerge over the project over the lifetime of the project.

14:26 And and Mike, from your perspective, what do you think is the the biggest mistake that's being made here? I don't think it's buying too little insurance.

14:34 I think it's assuming the budget that you've created uh is going to be sufficient and static and and supporting what is going to develop on this project. We've got long lead items.

14:44 We've got uncertainty uh around the globe right now with supply chain challenges. We've got labor mobility and

14:52 challenges that way, shortages. Uh I think insurance to value is becoming more an active project management task

15:00 and and and routine activity. It's not an annual kind of okay did we are we okay? Are we online here? It's as Todd

15:09 mentioned a living document. It's a living process. We have to be adapting to what's transpiring whether that's contractual transfer whether it's not um

15:17 something that we choose to purchase insurance for or transfer that way. I think as an industry

15:24 um I'm really more about understanding the story of the project. How are we going to tell this story? How are we going to understand all of the different

15:33 components and some of the smaller reviews that we have to take and aggregate and understand how that translates to our project? We could have

15:41 some headwinds that are pushing us towards yeah we need higher limits. But if you look at the sheer size and the length that it's going to take for some of these projects to actually be built

15:49 and completed, we could have technological advancements that bring down some of the replacement cost components. We could have some changes

15:57 in the way things are manufactured, delivered, transported. So, it's not going to be just an upward to the right

16:05 discussion. It's going to be looking at all of the the factors, having a process to assess them, and look at how that

16:13 could impact our project, our budget, our spend, and the risk that we're willing to take with that delta. And and

16:20 so it's not really necessarily an under insurance discussion. I think it's going to be a process discussion. Have we got

16:27 everybody involved that understands this and have committed to that process?

16:33 It's not a once and forget it. It's an ongoing discussion.

16:37 That's a really strong message to to wrap up with. Great thoughts from you both. Amazing. Both debut tons, but a terrific panel without a doubt. Of

16:45 course, remember this group will be back together again one more time in 2026.

16:50 But until then, keep it right here at insurance business TV.