Data Centre Construction Insurance Malaysia | CAR EAR DSU Guide

Data centre construction is different from every other building project. A typical DC build involves RM200M to RM2B+ in contract value, 18-36 months of construction, and a commissioning phase where a single testing failure can destroy RM50M worth of electrical equipment. Most importantly, every day of delay after the planned operational date costs the operator millions in lost hosting revenue.

This guide maps every insurance policy required for data centre construction in Malaysia: what each covers, why it's needed specifically for DC projects, and where the coverage gaps are that catch contractors and developers off guard.

This guide covers:

• The complete insurance stack for DC construction projects
• CAR vs EAR: which policy covers which phase
• Why DSU (Delay in Start-Up) is non-negotiable for data centres
• EEI during testing and commissioning
• SPPI for design consultants on DC projects
• Insurance requirements by contract form and tender stage
• Three claim scenarios specific to DC construction

The Complete DC Construction Insurance Stack

A data centre construction project requires more insurance policies than a standard commercial building because it combines heavy civil works, complex MEP (mechanical, electrical, plumbing) installation, and equipment testing where a single incident can cause catastrophic loss.

CAR vs EAR: Which Policy Covers Which Phase

Data centre construction is a split project. The civil and structural works (building shell, foundations, raised floors) fall under CAR. The MEP installation (generators, UPS, cooling, switchgear, busbar, fire suppression) falls under EAR.

The challenge is that MEP represents 60-70% of total DC project value. A RM500M data centre might have RM150M in civil works and RM350M in MEP installation. Getting the CAR/EAR split wrong means under-insuring the most valuable component.

On most DC projects, EAR covers 60-70% of the total insured value. This is the opposite of a typical commercial building where CAR dominates. Make sure the EAR sum insured reflects the true replacement value of all MEP equipment, including freight, installation, and commissioning costs.

Why DSU Is Non-Negotiable for Data Centres

Delay in Start-Up (DSU) covers the financial loss when insured damage during construction pushes back the operational date. For most building projects, DSU is optional. For data centres, it's the most important extension on the entire policy.

Here's why: a data centre generates revenue from Day 1 of operations. Pre-committed hosting contracts, cloud service agreements, and colocation leases start billing the moment power is available. A 3-month delay doesn't just cost money; it costs all the revenue the DC would have earned during those 3 months, plus potential contractual penalties to clients who were promised capacity by a specific date.

These figures illustrate why DSU coverage is essential. A transformer failure during commissioning that delays handover by 4 months could cost more than the transformer itself. Without DSU, the developer absorbs this revenue loss entirely.

How DSU Works on DC Projects

DSU attaches to the CAR/EAR policy. It triggers when insured physical damage (covered under CAR Section I or EAR) causes a delay to the planned operational date. DSU pays the loss of anticipated gross profit during the delay period, up to the agreed indemnity period.

The time deductible is important. If your DSU has a 60-day time deductible and the insured damage causes a 90-day delay, DSU pays for 30 days of lost revenue (90 minus 60). Negotiate the time deductible carefully. For hyperscale DC projects where even 30 days of delay costs tens of millions, a shorter time deductible is worth the additional premium.

EEI During Testing and Commissioning

The testing and commissioning (T&C) phase is when data centre equipment is most vulnerable. UPS systems are energised for the first time. Generators undergo load bank testing. HV switchgear is commissioned under live conditions. PDUs (Power Distribution Units) are loaded progressively.

EAR covers equipment during installation. But once equipment enters T&C, certain types of damage fall into a grey zone. Electronic Equipment Insurance (EEI) picks up where EAR's T&C coverage may be limited, particularly for:

For DC projects, consider arranging EEI to commence at the start of T&C phase, overlapping with the tail end of EAR coverage. This ensures no gap when equipment transitions from "being installed" (EAR) to "being tested" (EEI territory).

Need help structuring CAR/EAR/EEI for your DC project? Talk to our specialists

SPPI for Data Centre Design Consultants

Data centre design is highly specialised. MEP consultants, structural engineers, and architects on DC projects carry significant professional liability because design errors can cost tens of millions to rectify.

SPPI (Single Project Professional Indemnity) covers design errors on a specific DC project. It's separate from the consultant's annual PI policy and provides project-specific limits that match the project value.

Most DC developers require SPPI as a tender condition for design consultants. The SPPI limit should reflect the potential rectification cost, not just the consultant's fee. A consultant earning RM2M in fees on a DC project could cause RM50M in design error losses.

Insurance Requirements by Project Phase

Different policies activate at different project stages. Getting the timing right prevents gaps.

The transition from construction to operations is where coverage gaps most commonly occur. EAR coverage ends at handover. Operational policies (IAR, EEI, MB) should commence immediately. Any gap between the two creates an uninsured window.

DC Construction Premium Estimates

Data centre construction insurance premiums are influenced by project value, complexity, location, and the contractor's track record. These ranges provide budget planning guidance.

Total insurance cost for DC construction typically runs 0.3% to 0.6% of project value, which is higher than standard commercial buildings (0.2% to 0.4%) because of the DSU exposure and MEP-heavy EAR component. Budget accordingly when pricing your tender.

Three DC Construction Claim Scenarios

Scenario 1: Transformer Failure During Commissioning

A 33kV/11kV power transformer suffers an internal fault during commissioning at a Johor DC site. The transformer explodes, damaging the adjacent HV switchgear room. Replacement transformer has a 16-week lead time from the overseas manufacturer. The damage delays the operational date by 4 months.

Without DSU, the developer absorbs RM40M in lost revenue. The physical damage (RM8.5M) is only 17% of the total loss. DSU covers 83% of this claim. This is why DSU is non-negotiable for data centres.

Scenario 2: Flood Damage to MEP Equipment in Storage

Heavy monsoon rains cause flash flooding at a DC construction site in Seremban. Water enters the temporary storage area where RM15M of switchgear, PDUs, and UPS modules are stored awaiting installation. Equipment is submerged for 8 hours.

The NatCat (natural catastrophe) deductible applies. If the EAR policy has a 2% NatCat deductible on a RM350M EAR sum insured, the first RM7M of the RM13.2M loss is retained by the insured. Proper site storage planning (elevated storage, waterproofing) is both a risk management and premium reduction strategy.

Scenario 3: Design Error in Cooling System

An MEP consultant designs the cooling system for a 20MW DC but underestimates the heat rejection requirements. After commissioning, the DC can only operate at 14MW before overheating. Retrofitting additional cooling capacity costs RM18M and delays full capacity by 8 months.

This is why SPPI limits for DC consultants should be set at RM20M to RM50M+, not the typical RM5M to RM10M used on standard building projects. The consultant's annual PI policy may not have sufficient capacity for a claim of this size.

Malaysia's DC Construction Corridors

Insurance considerations vary by location. Each DC corridor has different risk profiles that affect coverage requirements and premiums.

Building a data centre? Get a comprehensive construction insurance programme from our DC specialists

Tender and Contract Requirements

Contractors bidding on DC projects must demonstrate insurance capability at tender stage. Most DC developers specify minimum insurance requirements in their tender documents.

Contractors who can demonstrate established relationships with insurers experienced in DC construction gain a competitive advantage at tender stage. Having your insurance programme pre-arranged shortens the mobilisation period after contract award.

FAQ

Do I need both CAR and EAR for a data centre project?

Yes. CAR covers the civil and structural construction (building, foundations, external works). EAR covers MEP installation and commissioning (generators, UPS, cooling, switchgear). On a typical DC project, EAR covers 60-70% of the total insured value because the MEP component dominates.

Who pays for DSU on DC construction projects?

Typically the developer/owner arranges and pays for DSU because it protects their anticipated revenue. DSU attaches to the CAR/EAR policy but the developer is the primary beneficiary. Some D&B contracts shift DSU cost to the contractor as part of the overall insurance package.

What's the typical CAR/EAR premium for a data centre?

Total construction insurance (CAR + EAR + DSU + ancillary policies) typically costs 0.3% to 0.6% of total project value. For a RM500M DC, expect RM1.5M to RM3M in total insurance premiums. The EAR component and DSU are the largest cost drivers.

Does EAR cover equipment damage during testing?

EAR covers testing and commissioning damage if the T&C extension is included (it should always be). But coverage may be limited to damage resulting from the testing itself, not pre-existing defects discovered during testing. The deductible for T&C claims is typically higher than for installation-phase damage.

When should EEI start on a DC project?

EEI should commence at the start of the testing and commissioning phase, overlapping with the tail end of EAR coverage. This prevents a gap when equipment transitions from "being installed" (EAR territory) to "being operated" (EEI territory). After handover, EEI continues as part of the operational insurance programme.

What SPPI limit should DC design consultants carry?

RM10M to RM50M per project, depending on the DC size and complexity. Standard building SPPI limits (RM5M to RM10M) are insufficient for DC projects where a single cooling design error can cost RM20M+ to rectify. The limit should reflect potential rectification cost, not just the consultant's fee.

Does CAR cover data centre equipment stored off-site?

Only if the off-site storage extension is included and the storage location is declared. DC projects often pre-stage equipment at temporary warehouses months before installation. Ensure these locations are declared under the EAR policy to maintain coverage for stored equipment.

What happens to insurance at handover?

Construction policies (CAR/EAR) transition to maintenance period coverage (defects liability only). Operational policies must commence immediately: IAR for property, EEI for electronic equipment, Machinery Breakdown for generators and cooling plant, and Business Interruption for revenue protection. Any gap between construction and operational coverage leaves the DC uninsured.

Are hyperscale DC projects placed differently from enterprise DCs?

Yes. Hyperscale projects (above RM500M) typically require international reinsurance placement because the sum insured exceeds local insurer capacity. These projects are placed through specialist brokers who access London market, Singapore, and regional reinsurance markets. Smaller enterprise DCs (RM50M to RM200M) can usually be placed within the Malaysian domestic market.

Does the 50/50 clause apply to DC construction?

Yes, and it's important. The 50/50 clause (design defect extension) covers consequential damage to sound works caused by a defective design element. In a DC context, if a poorly designed support bracket fails and the falling equipment damages the raised floor and cabling below, the 50/50 clause covers the floor and cabling damage (but not the bracket itself).

Foundation Conclusion

Data centre construction demands the most comprehensive insurance programme of any building type. The combination of high MEP values, long equipment lead times, and Day 1 revenue exposure means every gap in coverage translates directly into financial loss that dwarfs the premium cost.

CAR, EAR, DSU, EEI, and SPPI aren't optional extras on DC projects. They're the minimum insurance stack. Getting them structured correctly, with the right coverage triggers, deductibles, and transition timing, requires specialist P&E insurance knowledge.

Talk to our data centre construction insurance team