LONDON, March 24, 2025 — The construction industry is witnessing an unprecedented rise in data center projects driven by rapid technological innovation and the increasing demands of artificial intelligence (AI). Yet, this growth is tempered by the significant challenges posed by labor shortages and rising material costs, which are hindering both the construction and insurance sectors, according to the newly released Willis Global Construction Rate Trend Report for Q1, published by Willis, a WTW company (NASDAQ: WTW).

In North America, the shortage of skilled workers has reached alarming levels, with estimates indicating that an additional 500,000 workers are urgently needed to meet the mounting construction demand. This shortage is not confined to North America; Europe and Latin America are facing similar labor constraints, while in Asia, the scarcity of skilled labor is particularly severe. These labor shortages can result in subpar construction quality and a failure to adhere to safety standards, prompting the insurance industry to closely monitor project timelines and budgets.

Additional Key Insights

• Economic factors are significantly influencing the global construction insurance market, contributing to rising costs in the sector.
• The persistent increase in building material prices is driving project costs higher, leading to a surge in insurance premiums. The recent hikes in tariffs on construction material imports and exports are also expected to exacerbate these cost challenges.
• Recent natural disasters, including the devastating wildfires in California, have placed additional financial strain on the construction insurance market. Estimates of insured losses from the California wildfires range from $32 to $40 billion, impacting more than 16,000 buildings. This is expected to drive up insurance premiums for construction projects in California, further intensifying the already strained labor and materials markets.

Despite these obstacles, there are positive signs in the global construction insurance market. The Builders’ Risk and Construction All Risk (CAR) insurance segments are demonstrating resilience, with premium rates stabilizing and enhanced capacity for larger and riskier projects. In Asia, the market is showing signs of recovery, offering better rates and terms for high-quality risks.

Bill Creedon, Global Head of Construction at Willis, remarked, “The global data center boom is not only transforming the technology landscape but also catalyzing investments in the energy sector, with a strong emphasis on sustainable energy sources like solar, wind, and green hydrogen. Moreover, the nuclear industry is increasingly exploring the potential of Small Modular Reactors (SMRs) to power these facilities. Nonetheless, we are witnessing a robust response from the insurance market, with a continued emphasis on meticulous underwriting to address the evolving technological landscape. With our unique specialist industry knowledge and expertise, we continue to help our construction clients navigate through this difficult business environment.”

The report is available for download here.

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The surge in data center construction, fueled by AI's rapid development, underscores a significant transformation in the global construction landscape. With AI technologies advancing at an accelerated pace, the demand for cutting-edge data centers is intensifying. These centers require robust infrastructure to support the processing power needed for AI applications, including machine learning, data analytics, and cloud computing.

The increasing reliance on AI is not only reshaping the technology sector but also driving investments in energy infrastructure. Given the massive energy consumption of data centers, there is a growing focus on sustainable energy solutions. Solar, wind, and green hydrogen technologies are being prioritized as energy sources for these facilities, while Small Modular Reactors (SMRs) are being explored as a clean energy option for powering large-scale data centers.

However, these technological advancements come at a cost. The construction industry is grappling with significant challenges related to labor shortages, which are particularly acute in regions like North America and Asia. Skilled workers are in short supply, leading to delays, increased labor costs, and potentially compromised quality. Furthermore, with material costs on the rise due to global supply chain disruptions and inflationary pressures, construction projects are becoming increasingly expensive to complete.

Insurance providers are adjusting to these new realities. The surge in data center construction, combined with rising construction costs, is leading to higher premiums for construction insurance. Additionally, natural disasters like wildfires, hurricanes, and floods are further straining the insurance market, pushing insurers to adopt more cautious underwriting practices.

Despite these challenges, there are areas of optimism. The construction insurance sector is showing resilience, with some markets experiencing rate stabilization and an increase in the capacity for higher-risk projects. In particular, the Builders' Risk and CAR insurance markets are proving to be more adaptable, helping to mitigate some of the financial risks associated with large construction projects.

As the construction industry adapts to the demands of the AI revolution and its associated infrastructure needs, experts suggest that embracing innovative technologies and sustainable energy solutions will be key to overcoming current challenges. The collaboration between construction professionals, insurers, and energy providers will be essential in ensuring that the growing demand for data centers can be met while managing the risks that come with it. Learn more at wtwco.com.

Originally reported by Global Newswire.