Data Centres: A Rapidly Expanding Asset Class

Data centres now form the backbone of the digital economy, supporting everything from cloud services to financial transactions and AI platforms. Investment in the sector continues to grow rapidly as demand for computing power and data storage increases.

The scale of development is substantial. Modern data centre facilities can cost between $500 million and $2 billion to construct.

As infrastructure grows in size and complexity, so too does the opportunity for insurers. Analysts estimate the data centre sector could generate between $5 billion and $11 billion in annual insurance premiums in the coming years, reflecting the significant capital invested in digital infrastructure.

The Insurance Market is Responding

Recognising the scale of risk associated with data centres, insurers are expanding their coverage capacity and developing new insurance solutions tailored to this sector.

Insurers have recently increased limits available to data centre operators. One major insurer has expanded coverage capacity to up to $5 billion, the largest limits currently available in the market for these facilities.

Similarly, global broker Aon has expanded its Data Center Lifecycle Insurance Program to $2.5 billion in capacity, providing integrated coverage that spans construction, cyber exposure, operational damage and business interruption risks.

Why Accurate Valuations Are Critical

While insurers are increasing capacity, obtaining appropriate coverage still relies on one fundamental requirement: accurate declared asset values.

Data centres are highly specialised assets that include a complex mix of buildings, electrical infrastructure, cooling systems, backup power generation and IT equipment. Rapid expansion, upgrades and technological changes can quickly make existing declared values outdated.

If values are not regularly reviewed, organisations risk:

Underinsurance
Understating asset values can lead to reduced claims settlements, particularly where average clauses apply.

Inadequate business interruption coverage
Extended rebuild periods and specialist equipment replacement can significantly increase downtime following a loss.

Insurance placement challenges
As insurers tighten underwriting standards for high-value digital infrastructure, accurate and consistent asset valuations are becoming increasingly important.

Supporting Risk Management in a Digital Economy

As global reliance on digital infrastructure continues to grow, data centres will remain a key focus for insurers, investors and risk managers alike.

Ensuring asset values remain accurate and up to date is an essential component of effective risk management. Regular professional valuations allow organisations to demonstrate transparency to insurers, support policy placement and ensure adequate protection for these critical facilities.

The team enjoyed a packed agenda of insightful sessions, discussions, and networking opportunities, with plenty of chances to reconnect with longstanding industry contacts while also meeting new faces from across the global mining community. Conferences like this provide an invaluable platform to exchange ideas, share experiences, and gain perspective on the challenges and opportunities currently shaping the sector.

During the programme, Gareth Williams introduced a session on Heap Leach facilities, drawing on our experience in valuing these complex assets and their associated infrastructure. The session provided an opportunity to highlight some of the technical considerations involved in assessing these operations and to contribute to the wider conversation around risk and valuation in mining.

Beyond the conference sessions themselves, it was also a brilliant opportunity for the team to strengthen relationships with industry peers and stay close to the conversations influencing the future of the mining sector.  For more information on our work in the Mining sector click here. 

Our industry has traditionally been male dominated, but it is encouraging to see progress in the sector. From our Managing Director, whose leadership continues to guide the company, to our newest Graduate Surveyor, Amy, who represents the next generation entering the profession, we’re proud to support and celebrate women at every stage of their careers.

Meet Amy…

What attracted you to a career in surveying? 

The combination of a varied work life, through joint exposure to site visits and office life, and the people focused nature of the industry. 

What did you study, and how did it lead you into the surveying profession? 

I began with a bachelor’s degree in Ancient History, where I developed an interest in the built environment and the role buildings play in shaping societies. That interest led me to pursue a master’s degree in real estate, where I learned the fundamentals of property markets and valuation. 

What skills do you think are most important for someone starting out in valuation? 

Being inquisitive and having an attention to detail.  

What do you find most interesting about the valuation industry? 

I love that no one project or site is ever the same. Each valuation presents a different set of characteristics and challenges to understand. 

What are you hoping to learn or achieve in the next few years? 

My next milestone is achieving my APC qualification, and then I hope to specialise further in valuation. 

City office or site visits? 

Site visits. I’m a very active person, so I enjoy being out on site, understanding how a building works in practice and meeting the people connected to it. 

Favourite building or place you’ve visited? 

I recently travelled in Vietnam and loved visiting Hanoi. The city’s architecture reflects layers of different cultures and periods, which makes the streetscape incredibly interesting. 

One word to describe the surveying profession? 

Collaborative. 

Looking to the future

Centrica recently announced both the reopening of the Rough gas storage facility and the transformation of a former coal fire power station at Roosecote into one of Europe’s largest battery storages facilities.

Having completed significant upgrades to Rough, providing a gas storage safety cushion over the winter. The long-term aim of the facility is to be capable of storing both natural gas and hydrogen. A step towards greener energy. Similarly with the new battery storage facility at Roosecote.

Czech energy group EPH are also investing in a battery storage project at the site of former Eggborough coal station in the UK. With more than one billion pounds invested into the site, EPH are expected to construct one of the most modern power plants in Europe.

Short term measures

However, fossil fuels are still necessary, resulting in many older fossil fuel plants reopening. The UK government announced it will open the first new coal mine in 30 years and the last remaining coal power plant is to be kept open for another two years. With Germany and France also reopening plants and Poland increasing production. Energan has also just launched Israel’s first crude oil exports.

Whatever the approach taken, with change happening faster than ever, it’s never been more important to ensure that any facilities reopened or redeveloped are insured for the correct sums.

Address underinsurance now

The valuation of oil, gas and power assets is a highly technical and complex skill. Here at Rushton International we have an established and experienced team who have worked with some of the biggest names in the sector.

Our expert knowledge gives clients visibility on their entire business assets, no matter the global location or currency. We have valued a variety of fields in the energy market. Including mines across the Americas, South Africa and Australia, Oil refinery sites in the Middle East and offshore wind farms in the UK, to name just a few.

Robot automation is growing fast

The UK has always been seen as behind the times when it comes to manufacturing technology. The Manufacturing Technology Centre (MTC) ranks the UK 24^th for robot density over 10,000 manufacturing employees. However, in response to the changing climate, sales of individual robots sold to food and drink manufacturers is up. British Automation and Robot Association (BARA) data shows that sales in 2020 were up 21% from 2019, and that food and drink is now the second largest sector in terms of robots purchased annually.

Keeping up with demand

The argument for robot automation has always been based on improved productivity and quality. However, the technology is now needed just to keep up with demand and new emerging markets brought on by covid-19. Noticing a change in UK food and drink big players, Gareth Williams, Director at Rushton identifies a risk from the addition of robot automation that some may have overlooked.

 “We are finding more and more UK manufacturers are underinsured. Valuations conducted less than two years ago are already outdated and exclude any recently added technology. Meaning any new robot automation risks not being covered by insurance.”

Gareth Williams, Director, Rushton International

Manufacturers of all sizes affected

From on-farm picking to sandwiches being packed in triangular packaging, automation is being used at every step from farm to fork. One of the UK’s largest supermarkets, Morrisons is “investing in automation and robotics for production lines and grading technology, improving product flow and raw material yield, and removing repetitive manual tasks” according to the company’s annual results statement.

Many of the big names in food and drink have been using robot automation for years, yet SMEs, which make up more than half of food and drink manufacturers in the UK, are only just starting to invest. Currently 50% of SMEs are underinsured and according to Aviva 10% of SMEs would not survive if they had to pay up to £10,000 towards a claim that was not fully covered by insurance. Meaning it is particularly important for these businesses to make sure they have up to date valuations and insurance for any new technology they are investing in.

Make sure you’re covered

If you are a manufacturer looking to obtain a more up to date valuation, please contact us to find out how Rushtons can assist. As a regulated RICS firm of Chartered Surveyors, our standard model is to offer an onsite assessment and a further extension of service covering 2 years desktop updates, following which we would recommend a return to site. More about our insurance valuation services can be found here.

To discuss your valuation requirements or for further information, please contact a member of our team on 020 7702 3723 or email enquiry@rushton.co.uk.

Many factors have caused the rapid rise, from the ongoing energy crisis and war in Ukraine, increased post-pandemic demand, supply chain bottlenecks and labour shortages. These factors plus many more are expanding the risks businesses are facing.  

Inflation and underinsurance

Inflation driving costs up means that many businesses’ assets will have a significantly higher value and replacement costs from just a few months ago. This has increased the risks of many being underinsured, whether it be rebuilding premises or replacing stock, if you do not have enough coverage due to rising costs you could be liable for the shortfall.

Gareth Williams, Director at Rushton International comments “property damage claims are where we are coming across underinsurance the most. The Office of National Statistics predicted a 7-8% increase in material prices this year, however by June the average increase was already at 23%. Combined with a shortage of materials internationally and labour in the UK, the risk of being underinsured has never been higher.“

Mitigate the risk

Out-of-date valuations in a volatile market aren’t a risk any business wants to deal with. Given the financial impacts that can follow underinsurance, it is important to address the risk in advance of the insurance renewal date. A more robust and accurate review of the reinstatement values can be required from an onsite survey.

How can we help?

As a regulated RICS firm of Chartered Surveyors, our standard model is to offer an onsite assessment and a further extension of service covering 2 years desktop updates, following which we would recommend a return to site. More about our insurance valuation services can be found here.

To discuss your valuation requirements or for further information, please contact a member of our team on 020 7702 3723 or email enquiry@rushton.co.uk.

Ensuring the Correct Sums Insured remain up to date

Ensuring the Correct Sums Insured remain up to date is both a cost consideration (Reinstatement Cost) and a time consideration (Reinstatement Period), and of course both factors interrelate. Therefore, both Declared Values and the Inflationary Provision applied as a Day-One Uplift require a regular review to ensure the Current Sums Insured remain accurate and the risk of underinsurance to policyholders is mitigated.

• Declared Value: Over the last 12 months alone, the construction sector has shown an increase of c.7% in pricing levels when reviewing the Tender Price Index of the Royal Institution of Chartered Surveyors (RICS), and c.11% when reviewing the General Cost of Building Index of the RICS. Reinstatement costs can therefore be seen to have increased significantly over the last year.
• Inflationary Provision: Due to supply chain and procurement issues, together with construction timeframes, lead times have all increased too. Consequently, the Reinstatement Period/Indemnity Period require monitoring to remain congruent with the market.

Furthermore, buildings are often extended and/or altered and the effect of this may not always be properly considered in the absence of on-site reassessment. A regular revaluation ensures changes to the subject property are captured.

Hardening of the market

As the cost of insurance has increased, insurers and underwritings are less willing to take on risk. A regular revaluation will increase underwriter confidence and hopefully lead to a reduced premium through accurate representation.

A policy and/or contractual requirement

Often it is a prerequisite in a policy for a property to be revalued every 3/5 years and neglecting to do so would lead to a policy breach. Furthermore, it is often a contract stipulation or lease covenant, and again failure to undertake regular reinsurance would lead to breach of contract.

The RICS Guidance Note on the Reinstatement Cost Assessment of Buildings states; “It is prudent to incorporate recommendations within [a] report to the effect that the client needs to reassess the sum insured on a regular basis, with an annual adjustment to reflect inflationary effects, and a major review and reassessment every three years, or earlier should significant alterations be made to the insured property.”

As an organisation of RICS Chartered Surveyors, our standard model is to offer an onsite assessment and a further extension of service covering 2 years desktop updates, following which we would recommend a return to site.

To discuss your valuation requirements or for further information, please contact a member of our team on 020 7702 3723 or email enquiry@rushton.co.uk.

The Energy Crisis

There have been several factors recorded over the past few months that have contributed to this rise including:

• European and British gas storage levels – daily production has not been enough to meet demand.
• Colder temperatures in April and May last year, EU storage sites are around 20% lower than normal – a colder start to the year reduced European gas reserves.
• Low wind generation across Europe – creating a demand from gas-burning electricity generating power stations.
  (Wholesale energy prices explained: Why our rates are changing, 2021)

Construction products such as steel, aluminum, glass, brick and ceramics, require high energy as part of the manufacturing process. This high energy demand coverts to around 25% of the manufacturing cost of the construction material. The surge in energy prices has resulted in higher prices of goods and manufacturing delays due to price increases for the manufacturer.

For example, Scunthorpe based British Steel, has started to add surcharges of up to £30 per ton to their products, reflecting the rise in costs (Davies, 2022).  The higher energy prices will effectively impact suppliers working on fixed price contracts as they cannot recover the increased costs of energy prices or construction products.

It is therefore important for contractors to consider any potential delays and price hikes that may occur during current and upcoming projects and understand what work will carry most risk.

Arcadis have recently upgraded their overall tender price forecast for 2021 reflecting a 4-5% increase on buildings, a 5-6% increase in infrastructure and indicated that this will be carried over into 2022 (Arcadis, 2021).

Although this setback has already seen the collapse of numerous energy suppliers in late 2021, the construction industry  has not yet slowed down and during Q3 of 2021 the output saw prices reach £46.2bn. It is also important to note that infrastructure work is currently 20% higher than the long-term average and the demand for these facilities remains strong.

Market intelligence leader Anieszka Kryzaniak said: “There are a number of short-term measures that clients can take now to reduce their exposure to risk. For example, cutting the idle and stand-by time of equipment will save on fuel, and has the added benefit of reducing carbon emissions. In the longer term, switching to electric equipment, planning for the adoption of hydrogen, and educating plant operatives in managing emissions, will not only result in energy cost savings, but pave the way for more positive societal impacts too.”

The impact of COVID-19

As discussed in our previous Covid-19 update article, the construction industry has already faced a number of difficulties including HGV and labour shortages due to COVID-19 and Brexit, whereby the UK saw around 43,000 construction job vacancies between July and September 2021.

As a result of these factors and the continuous pressure on the construction industry, many businesses have been driven into insolvency and around 9 in 10 local builders forced to delay work (Woodfield, 2021).

Summary

Supply shortages were present during the final quarter in 2021 and the industry should not be expected to see any improvements until the first quarter of 2022.

For Buildings, Civil Engineering, Civic Infrastructure and General Real Estate enquiries please contact;

Gareth Williams BSc MRICS
Director
gareth.williams@rushton.co.uk
07788 188847

Bibliography:

Arcadis.com. 2021. UK Autumn Market View: December 2021. [online] Available at: <https://www.arcadis.com/en-gb/knowledge-hub/perspectives/europe/united-kingdom/2021/uk-autumn-market-view-december-2021>

Shellenergy.co.uk. 2022. Wholesale energy prices explained: Why our rates are changing. [online] Available at: <https://www.shellenergy.co.uk/blog/post/wholesale-energy-prices-explained-why-our-rates-are-changing>

Woodfield, J., 2022. Will the Construction Materials Shortage Continue in 2022?. [online] Homebuilding & Renovating. Available at: <https://www.homebuilding.co.uk/news/construction-materials-shortage>

Ultimately, exposure to underinsurance would mean funding replacement costs following a loss from other sources.  A reserve that many businesses will not have, and an oversight that could lead to financial collapse. Conversely, the cost of over insurance is wasted premium, which can annually eat into company margins.

BIBA (the British Insurance Broker’s Association) advise businesses to use professional valuation services regularly, to make sure sums insured are correctly assessed. The risk of incorrect insurance cover will be greater if a professional valuation has not been carried out within the last three years.

However, this is not just about the number, a detailed valuation report that provides a beneficial description of a property and its construction form will be welcomed by insurers and underwriters to further understand the asset at risk. It will also assist in calculations such as Estimate Maximum Loss and likewise provide reference material in the event of a claim.  Furthermore, in most cases having a professional valuation will remove the Average Clause in the policy, transferring further risk away from the insured.

The risk of under insurance is even more prevalent currently, due to price and project timescale increases in the construction market.

COVID-19 Follow Up

Further to our previous update on price increases, {A COVID-19 update on the Construction industry – Rushton} several material rates have continued to rise. The current situation is unprecedented and similar sustained industry-wide material price increases have not been seen since the 1970’s.

Price movement from 2Q 2020 to 2Q 2021 for some of the worst effected materials can be seen below;

The big price rises can be attributed to a variety of factors;

• A general post-covid leap in construction causing a rise in demand.
• Supply issues including shortages, allocations, and delivery problems.
• Production difficulties due to covid-19 disruption and political upheaval (Brexit).
• Accidents such as the Suez Canal blockage.
• Weather: plastic polymer production disrupted by winter storms in Texas, and Hurricane Ida.
• Energy costs: a 70% rise in wholesale gas prices contributing to cost escalation for brick manufacturing.

Industry Changes

The insurance market has hardened quite considerably due to an increase in claims and falling levels of underwriter confidence. Lloyd’s of London CEO, John Neal, recently claimed that the pandemic is the most expensive event to ever hit the insurance world. Generally, this hardening of the market will imply:

• Higher insurance premiums.
• Stricter underwriting criteria.
• Insurers being more risk averse.
• Premium rates being less competitive among insurers.

The last review the Financial Conduct Authority (FCA) carried out revealed what they termed ‘an alarming degree of underinsurance.’ In August 2016 the Insurance Act 2015 came into force, stipulating a “duty of fair representation” of risk by the insured.

In consideration of all the above, it is now more important than ever to ensure declared values are accurate, and reinstatement periods remain appropriate.

Rushton International are a London based firm of Chartered Surveyors and Registered Valuers who have a specialist team of real estate professionals, specialising entirely in Reinstatement Cost Assessments/insurance valuations. Our experience spans all sectors of real estate and civil infrastructure internationally.

For further information on the importance of valuations, please contact:

Gareth Williams BSc MRICS
Director
gareth.williams@rushton.co.uk
07788 188847