Protecting Data Centers: Why Water Damage Prevention Can't Wait Until After Construction
Across the U.S. data center construction has taken center stage. Fueled by the consumer and commercial sector’s increasing appetite for data computing, including AI-supported applications, data centers have been transformed from simple server farms into critical infrastructure for storing, processing and distributing the data we rely on to power our daily digital lives.
As data center construction continues to proliferate, with investments projected to balloon to $45 billion by 2028, the need to keep these high-value projects on track to meet precise schedules and accelerated timelines requires a heightened focus on proactive risk management. Besides navigating potentially devastating exposures from natural disasters, construction and risk executives must carefully assess and manage risks from water damage, a widespread and particularly serious threat for data center projects.
While tech giants like Google, Amazon, and Meta grab headlines for mega projects with large-scale electrical power needs, data centers serve virtually every sector of modern life. Businesses, government agencies, financial institutions, healthcare organizations, hospitality, and airlines, among many other information-intensive sectors, increasingly depend on these facilities to manage their data, applications, and IT infrastructure.
New Reality of Date Center Construction
These multi-billion-dollar, massive-footprint builds are sprouting nationwide, each bringing unique demands for infrastructure, power, and resources. The South Atlantic region (Virginia, Georgia, North and South Carolina, and Florida) and East North Central states (Ohio and Indiana) have emerged as hotspots, drawn by accessible power infrastructure, available land, and tax incentives.
Data center construction has evolved rapidly, with requirements advancing as fast as the technology they house. Architects, designers, and general contractors are constantly adapting to new design parameters, layout complexities, and specialized building systems such as mechanical, electrical, and plumbing that far exceed traditional construction standards.
Time pressure intensifies everything. With AI demand growing daily, contractors and owners operate under precision-tight schedules with zero margin for error. A single water damage incident can derail timelines, budgets, and reputations.
Water Damage Poses Serious Risk for Data Centers
Data centers face elevated water damage risks that dwarf those of traditional buildings. While typical construction projects require added attention to plumbing for restrooms and kitchens, mechanical systems like cooling and sprinklers, or faulty craftsmanship or vandalism concerns, data centers operate on an entirely different scale of complexity and vulnerability for water damage loss potential.
To start, the data center’s location may compound the risk. The massive footprint requirements often push data centers toward less prime real estate, including areas with partial flood zone inclusion. This creates elevated groundwater intrusion risks from day one of construction.
The real challenge lies in data centers' extreme cooling demands. These facilities consume water at unprecedented levels to manage the intense heat generated by concentrated server racks. Traditional HVAC systems—designed for pushing cooled air through one vent while exhausting warm air through another—simply can't provide the deliberate containment and heat removal these environments require.
Instead, data centers deploy complex water-based cooling systems using larger-diameter pipes to handle substantial volumes of water. Popular solutions include Computer Room Air Handlers combining air and liquid cooling, while emerging technologies like Microsoft's "boiling water cooling" push the boundaries of traditional evaporative cooling techniques. Some facilities even use mineral oil and other specialized liquids for efficient heat removal.
These high-volume uses can exacerbate the potential for water damage loss due to leaks, flooding, or intrusions. Summer months amplify these challenges with increased condensation on pipes and throughout cooling corridors. Furthermore, these systems often require specialized cleaning, filtering, and maintenance protocols that increase opportunities for spills, leaks, or overflows—all during the construction period when protection systems may not yet be fully operational.
The Cascading Impact of Water Damage
Water damage in data center construction creates consequences that extend far beyond immediate cleanup costs. The ripple effects can be catastrophic:
- Equipment Damage: Water exposure can short-circuit or corrode sensitive electronic equipment, causing complete failure and data loss. This doesn't just impact the data center itself; it potentially affects every service and client depending on that infrastructure, creating financial losses, reputational damage, and shattered customer trust.
- Timeline Disasters: With average data center construction spanning six to 36 months, avoiding delays becomes critical when replacing damaged materials. Supply chain disruptions and tariff complications can add crushing expense and time to already tight construction schedules, especially when specific equipment must be installed in precise sequences for operational readiness.
- Labor Complications: The specialized nature of data center construction requires technicians with expertise in electrical, mechanical, and computer engineering. Material replacement delays can mean losing access to required specialists, who may no longer be available when replacement parts finally arrive, creating or compounding delays that spiral beyond the original damage timeline.
- Budget Implosion: Even seemingly minor water incidents create major financial impacts. A single day of drying, demolition, and rebuild can add 0.5% to 1% to the total project value, while repeated small incidents steadily erode profitability throughout the construction timeline.
The Silent Profit Killer
Beyond insured losses lies an even more insidious threat: the steady erosion of profit margins from uninsured damages. Many water-related issues fall below standard deductibles, forcing contractors and owners to self-fund cleanup costs. Immediate issues—settling or cracking from temperature extremes—can derail even the most carefully crafted schedules. Meanwhile, long-term problems like rust, corrosion, mold, and fungus may remain undetected for months, ultimately requiring remediation that can impair future profitability.
These uninsured losses also compromise the precise environmental controls data centers demand for optimal performance. Temperature and humidity fluctuations can compromise sensitive equipment long before visible damage appears, while moisture-related issues like mold or corrosion can undermine critical infrastructure over months or years.
"The reality is that many of the most critical issues data centers face—temperature fluctuations, humidity changes, or condensation—simply aren't covered by standard insurance policies," explains Michael Reich, Chief Underwriting Officer at Insight Risk. "Contractors often assume their insurance will handle everything, but these seemingly small environmental issues cause project delays that insurance won't fix. You might have coverage for the cleanup, but your policy isn't going to deliver your project on time. In today's tight construction schedules, avoiding these uninsured losses isn't optional; it's essential for protecting both timelines and profitability."
Smart IoT Technology to the Rescue
With hundreds of thousands of square feet of building area and millions of dollars in equipment value at risk, IoT-enabled water detection should be a non-negotiable strategy for every data center under development.
While regular inspections and maintenance walkthroughs remain important, physically examining these large facilities can be difficult. Adding proactive water damage prevention solutions provides comprehensive protection against potential risks that manual monitoring simply cannot match, enabling site teams to quickly pinpoint the exact area being impacted and respond promptly. IoT devices that facilitate detection and response include:
- Water Detection Sensors: These compact, unobtrusive devices can be deployed strategically in locations where water is most likely to pool or intrude. Extension cables can expand sensor coverage, creating comprehensive monitoring networks throughout construction zones.
- Humidity Sensors: Detecting elevated moisture levels, these sensors can signal hidden issues like leaks, mold risk, or material damage before an issue escalates, or trigger the need for a dehumidification process to protect the site and equipment.
- Leak Detection Cables and Mats: Installed around building perimeters, these systems can detect even minimal water presence—sometimes just a few drops—while providing extensive protection coverage that point sensors cannot achieve alone.
- Remote Water Shutoff Valves: Engineered for manual deployment, scheduled operation, or automatic event response, these remotely controlled valves can halt water flow within minutes of detection, preventing minor leaks from becoming major disasters.
Examples of Technology
Industry leaders like Microsoft have already mandated integrated water sensors and shutoff valves for their data center facilities. However, many other data center developers are still finalizing technology requirements or remain uncertain about which sensors and devices best serve their complex operational needs.
As Bret Bush, Executive Vice President and Co-Founder of Insight Risk, put it: “For us, it’s about being proactive in managing risk on these large, complex projects. Many are in remote locations, and IoT technology gives teams the ability to monitor sites around the clock. Response time is critical; the delays caused by an incident often end up costing more than the property damage itself. Reputations are on the line too. Our goal is to support construction teams with tools that reduce the risk of losses, damage, and costly delays. It’s always a team effort.”
Insurance Implications of IoT Implementation
Smart prevention strategies, particularly IoT monitoring systems, create dual benefits: they prevent costly water damage incidents while simultaneously positioning contractors and owners for more favorable insurance terms. Insurers increasingly recognize the value of real-time monitoring data as evidence of serious risk management commitment, often translating this into reduced premiums and lower deductibles. For project owners and contractors seeking coverage, that can be a game-changer; in a recent article in Carrier Management, insurance executives pointed out that data centers are consuming significant chunks of insurance market capacity.
This data-driven approach to risk mitigation becomes especially valuable in high-risk scenarios—whether due to geographic factors, complex building systems, or challenging construction timelines—where traditional water damage prevention methods may fall short.
Carriers assess overall risk by considering three main categories: risk data, loss history, and risk quality. Risk data, such as building demographics, and the loss history encompassing a general contractor’s or developer’s past losses are fixed factors. Risk quality, however, can be positively influenced by IoT monitoring systems that demonstrate a proactive loss prevention strategy and ultimately impact coverage terms, premium rating, and deductible levels as part of the overall risk assessment. Better protected projects can achieve material savings that flow directly to the project’s bottom line.
The cost of IoT solutions favorably compares to the savings in potential remediation and repair costs, construction delays that could lead to loss of rents or other business interruption losses, and other measurable impacts including extended soft costs. In many cases, preventing a single water damage incident will pay for the entire technology investment.
Protection That Pays
The data center construction boom shows no signs of slowing. Water damage during construction can transform a successful project into a financial disaster, but fortunately proven IoT water damage solutions exist today.
Proactive leak protection must be integrated from initial design through construction completion and operational handover. The technology is available, the insurance benefits are real, and the stakes are too high to wait.
In an industry where millions of dollars hang in the balance and timelines allow no room for error, water damage prevention isn't just smart risk management—it's an essential business strategy.
Ready to protect your investment? Contact Insight Risk to discover how our White Glove IoT Risk Tech solutions can safeguard your next data center project from Day One. The Insight Risk team delivers comprehensive protection from pre-construction planning through final occupancy—ensuring your multi-million-dollar build stays on track, on budget, and water-damage free.
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