Lithium-Ion Battery Fires from an Insurance Perspective: Assessing a Rising Industrial Risk

Lithium-ion batteries are widely used in data centers, industrial facilities, energy storage systems, and electric vehicle infrastructure due to their high energy density. However, this technological advantage also brings significant fire and explosion risks. Large-scale fires that have occurred in recent years have fundamentally changed the insurance sector’s approach to risks associated with lithium-ion batteries. This study examines how insurance companies assess lithium-ion battery fires in terms of coverage, premiums, deductibles, and risk acceptance criteria, and discusses the impact of this approach on fire engineering and occupational safety practices.

On a global scale, energy transition and digitalization have rapidly increased the adoption of lithium-ion battery technologies. Uninterruptible power supplies (UPS), energy storage systems (ESS), and mobile device infrastructures are at the core of this transformation. Nevertheless, recent fire incidents have revealed that these batteries are not only a technological concern but also high-risk assets from an insurability perspective. Due to the increasing frequency and severity of losses, the insurance industry now treats lithium-ion battery fires as a distinct category, separate from conventional electrical fires.

Risk Profile of Lithium-Ion Battery Fires from an Insurance Perspective

Insurance companies classify lithium-ion battery fires as “high loss potential risks” due to the following characteristics:

·       The risk of cascading ignition caused by thermal runaway,

·       The possibility of re-ignition even after the fire appears to be extinguished,

·       The need for prolonged and intensive cooling,

·       The release of toxic gases and the risk of secondary damage,

·       Scenarios that can rapidly result in total loss.

These characteristics significantly affect both property damage and business interruption coverage from an insurance standpoint.

Policy Terms and Coverage Practices

In recent years, the insurance industry’s approach to lithium-ion battery fire risks has become noticeably more stringent.

Special Disclosure and Coverage Conditions

·       UPS systems, ESS facilities, and battery rooms are now considered, in most policies, as risk elements that must be separately disclosed.

·       Failure to disclose these elements may result in denial of coverage in the event of a loss.

Premium and Deductible Policies

For facilities containing lithium-ion batteries:

·       Higher premium rates,

·       Increased deductibles,

·       Specific capacity (kWh) limits

are commonly applied. Some insurers also decline to provide coverage unless certain technical requirements are met.

Technical Measures Required by Insurers

The technical measures expected for insurance acceptance are directly related to fire engineering principles:

·       Locating battery areas within separate fire compartments,

·       Installing explosion-resistant ventilation systems,

·       Implementing gas and temperature detection systems (e.g., HF, CO),

·       Using advanced Battery Management Systems (BMS),

·       Employing water mist or deluge systems in addition to conventional sprinkler systems.

Insurers assess these measures not merely as recommendations, but as mandatory conditions for risk acceptance.

Standards and Guidance Documents

Insurance companies frequently refer to the following international standards and guidance documents in their risk assessments:

·       NFPA 855 (Energy Storage Systems),

·       FM Global Data Sheets,

·       UL 9540 and UL 9540A testing,

·       IEC and EN battery safety standards.

These documents form the technical basis of insurance loss adjuster and risk engineering reports.

Discussion: Is Insurability an Indicator of Safety?

For many facilities today, insurance companies’ risk acceptance criteria have effectively become the minimum fire safety standard. In systems containing lithium-ion batteries, the inability to obtain insurance is often regarded as an indicator of technical safety deficiencies. This situation positions the insurance sector not merely as a financial mechanism, but as an indirect safety regulator.

Conclusion

From the perspective of insurance companies, lithium-ion batteries are no longer considered ordinary equipment, but rather a high-risk facility component in their own right. The increasing number of fire incidents has led to the implementation of more stringent conditions in insurance policies. This, in turn, encourages operators to adopt fire engineering–based design and effective risk management practices. In the context of lithium-ion battery fires, the insurance industry clearly demonstrates that negligence-based risks are financially unsustainable.