Insurance risks of Li-ion

Main risks of using and handling Li-ion batteries

The main risks of using lithium-ion batteries are fire and explosion, as these types of batteries combine high-energy materials with often flammable electrolytes.

Any damage to the separator inside a cell of a battery pack can cause an internal short circuit with a high probability of thermal runaway. Once a cell has experienced thermal runaway, it is very difficult to stop this effect, so it is very likely that the heat will spread to adjacent cells, causing a chain reaction with often catastrophic consequences.

During thermal runaway, the high heat from the failing cell within a battery pack can affect subsequent cells, causing them to become thermally unstable as well. Thus, a pack can be destroyed in a few seconds or over several hours or days, depending on when each cell is consumed.

The phases of fire generation begin with the release of toxic gases (HF, CO, CO₂, POF₃, etc.), the subsequent release of heat, and the combustion of the flammable materials comprising the battery. Moreover, the overheating of the cell and the overpressure generated can lead to an explosion.

Causes of lithium-ion battery failure

The failure of lithium-ion batteries and the consequent risk of overheating and thermal runaway can be caused, among other things, by:

• Internal design or manufacturing defects, such as, for example, material defects (electrode, separator, electrolyte), contamination, assembly, or construction faults
• Physical damage during construction, assembly into finished products, shipping, handling, waste disposal or during use; whether accidental or malicious
• Physical damage with mechanical effects, such as crushing, excessive vibration, impact 
• Rapid degradation of batteries over time
• Undetected ageing and subsequent internal short circuit
• Effect of use:
  • Rapid charging
  • Discharging the device faster than necessary
  • Use or storage in wet environments
• Thermal effect:
  • Exposure to high temperatures
  • Exposure to flames
  • Heat from adjacent or nearby cells
  • Low temperatures, mainly during charging
• Electrical effect:
  • Excessive overcharging or over-discharging
  • Short circuit.

The considerations of all these causes of failure, together with the different phases of the fire, are the ones to be taken into account when analysing the risk and the possible prevention and protection measures required.

Approaches and challenges for insurers

As a way of proceeding within the insurance industry, and in order to provide an insurance solution adapted to the risk to be insured, it is necessary to conduct a risk analysis and risk assessment. This risk analysis will be defined by the types of coverage to be covered such as, for example, property damage coverage and associated loss of profits.

The insurance industry must focus on the risk that exists not only during the manufacture of lithium-ion batteries, but also during their use, transport, and storage.

The uses and applications of lithium-ion batteries include the following:

• small portable rechargeable devices and other commonly used electronic products (computers, mobile phones, etc.) 
• electric mobility and electric automotive (vehicles, scooters, bicycles, etc.)
• car parks
• forklifts used in industry and warehouses
• emergency power supply system or UPS (Uninterruptible Power Supply): Nickel-cadmium batteries have started to be replaced by lithium-ion batteries
• battery energy storage systems (BESS): Accompanying renewable energy installation projects (photovoltaic installations, wind farms, etc.) and to facilitate grid stability (stand-alone) in remote areas
• renewables (surplus of excess energy generated): Renewable energy sources such as solar and wind energy are intermittent, so their storage becomes a key factor for a reliable energy supply. Renewable energies, such as solar panels or wind turbines, only produce electricity when the sun is shining or the wind is blowing. Complementing these energies with BESS allows users to take advantage of the electricity that is generated when renewable energy technologies are not producing electricity.
• stand alone: The increased demand for a cleaner, more efficient and resilient electricity grid has sharply increased the use of Battery Energy Storage Systems (BESS) in the last decade. For this purpose, they usually go along with the substation to give stability to the network. They are usually found in remote locations, providing:
  • frequency regulation
  • maintenance of voltage levels
  • peak neutralisation: A BESS allows the user to change the power supply source by drawing power from batteries during the higher-cost daytime hours and recharging during the lower-cost night time hours. This practice is known as peak neutralisation.
  • charge levelling: When power generation plants increase or decrease output to keep up with changing electricity demand, pressure is placed on the system. A BESS can help flatten that demand curve by charging when electricity demand is low and discharging when it is high.

Storage is considered to be a highly complex risk from a safety point of view. Storage can be of the lithium-ion batteries themselves, as well as of other products of very different types and sizes containing this type of battery, such as computers, cell phones, portable tools, electric bicycles/scooters, etc.

In the case of storage of lithium-ion batteries or products containing lithium-ion batteries, the battery charge level of the stored asset is usually low (<50%), but higher than 10% in any case. Consequently, there is some risk that, due to damage to the battery, a fire may occur.

Moreover, in the case of stored products containing lithium-ion batteries, the BMS (Battery Management System) is not operational.

The BMS is an intelligent element/system in charge of controlling and managing the storage system is crucial in terms of safety, performance, charging rates, and longevity. Some of the main features of the BMS include battery charge and discharge control, battery condition estimation, battery condition monitoring and analysis, safety protection, power control management, and battery information management.

Finally, the products are generally stored inside cardboard and plastic packaging, which increases the fire load in the warehouse. The development of fire in warehouses with lithium-ion batteries or goods containing lithium-ion batteries is comparable to the usual fires in warehouses with high fire loads and/or hazardous products (flammable, toxic, etc.).

Insurance companies consider the fire potential of lithium-ion batteries as one of the most important risk factors and the fact that there are multiple uses and applications for these batteries makes it difficult to define homogeneous safety measures.

There are several challenges to consider from an insurance point of view:

• the diversity of uses of lithium-ion batteries 
• the very different conditions of their use
• the existence of situations in which different uses and risks are combined in the same areas
• increasing energy storage capacity
• lack of regulation/standards
• difficulty in control and protection (some systems require large quantities of water for extinguishing and/or pose significant environmental risks)
• difficulty of intervention (action procedures) in the event of a fire/explosion
• limited experience and loss history.

All the above makes it necessary to analyse each situation on a case-by-case basis in order to provide the best response in terms of a safety and underwriting standpoint (insurance).

The development of local and/or state regulations has not been carried out as quickly as the technology has developed, driven by the strong demand. However, different bodies, associations, and authorities are developing standards and norms of good practice.

Additionally, post-loss research will help to better understand the behaviour of this type of battery in the event of a fire and the possible preventive measures to reduce the risk and, if it is not possible to reduce the risk, the best protection measures.

For the moment, due to the diversity of uses and types of storage of lithium-ion batteries and the fact that insurance companies do not have sufficient loss experience, it is not possible to analyse the risk globally, nor it is possible to analyse the necessary preventive and protective measures to be taken to achieve good insurance conditions.

General safety measures to be adopted

Some general aspects that enhance safety during the use, handling, transport, and storage of lithium-ion batteries should be considered, which are:

• recognised battery manufacturers
• product data sheets
• proper use, handling, transport, and storage of batteries according to the manufacturer
• the BMS safety monitoring system (temperature sensor, voltage regulator circuit, and a charge status monitor) is essential during the use of this type of battery, not only to control the charging and discharging of the battery, but also to ensure safety during its use 
• good compartmentalisation and/or separation between batteries and other products and installations 
• control of ambient temperatures and humidity
• gas detection systems
• smoke detection systems
• fire extinguishing systems
• safety procedure during use, handling, transport, and storage
• procedure of action/intervention in case the batteries become damaged and/or catch fire
• emergency response.

However, depending on the type of use and/or storage of the lithium-ion batteries or goods containing them, the aforementioned safety improvement aspects cannot be considered in the same way, nor will they have the same influence. Therefore, depending on the type of use and/ or storage, the most appropriate safety aspects should be analysed and studied individually, that is, on a case-by-case basis.

Conclusion

To limit the probability and consequences of a lithium-ion battery fire, considering the type of use and/or storage, a comprehensive strategy must always be adopted that includes: risk prevention; BMS safety monitoring systems; compartmentalisation or separation; control of ambient temperatures and humidity; early detection of generated gases and smoke; active fire extinguishing (cooling and control); and safety and emergency response procedures.

Moreover, a specific fire protection solution is required for each use or application, as there is no universal protection concept that adapts equally to all applications.

Finally, there are limitations from the insurance industry, such as the fact that the ‘property damage’ coverage is being determined in such a way that (in some cases high) ‘deductibles’ are being proposed and, in some situations, this coverage is being specifically excluded.

Example Standards of good practice

• NFPA 110, Standard for Emergency and Standby Power Systems, 2022 edition
• NFPA 111, Standard on Stored Electrical Energy Emergency and Standby. Power Systems 2022 edition
• NFPA 855, Standard for the Installation of Stationary Energy Storage Systems, 2023 edition
• FM: RESEARCH TECHNICAL REPORT Development of Sprinkler Protection Guidance for Lithium Ion Based Energy Storage Systems. Development of Sprinkler Protection Guidance for Lithium-ion Based Energy Storage Systems (June 2019. Revised October 2020)

Fire & Risk Management is the UK’s market leading fire safety journal, published 10 times a year, and is available exclusively to FPA members in digital and print format depending on your requirements. You can find out more about our membership scheme here.

María Teresa Queralt is the Technical Team Leader/Engineering at MAPFRE Global Risks Unit.