Will the lithium-ion battery boom trigger an insurance bust?

As the world seeks to transition from using fossil fuels to clean energy, the growing dependence on lithium-ion batteries to support this shift could pose a major issue for the insurance industry.

Lithium-ion batteries, which have been in use since the early 1990s, are now essential in a wide range of products, including laptops, phones, power tools, electric vehicles (EVs), e-bikes and e-scooters.

Lithium batteries support the switch to renewable energy by storing excess power from sources such as solar panels, which can then be used to charge EVs or power electronic devices when renewable energy sources are not active.

However, Graham Hawkins, associate director and head of environmental at insurance services firm Charles Taylor, warned in April 2024: “Just because something is green does not mean it won’t pose a risk to the environment if it goes wrong.”

In the first half of 2023, for example, the London Fire Brigade identified lithium-ion battery fires as “the city’s fastest emerging and growing fire risk”.

Barnaby Winckler, partner at law firm Kennedys, agreed that the increasing use of lithium-ion batteries will lead to more fires, posing a growing risk for the insurance industry.

He explained that while incidents such as lithium-ion battery powered laptops catching fire are well known, the issue extends to other devices.

“For example, cars can catch fire while being recharged in a garage and e-bikes can ignite inside a property,” said Winckler.

Andrew Collins, senior associate at Halliwell Forensics, added: “Halliwell Forensics is investigating more battery-related fires every month. Five years ago, e-bike or e-scooter fires were infrequent, but now we’re receiving several instructions each month.

“The main factor is the growing use of devices with batteries. E-scooters, e-bikes, e-cigarettes and EVs are now more common than a few years ago. Consequently, the surge in these devices is leading to more battery-related issues and fires.”

According to London Fire Brigade data, published in December 2023, there were 150 e-bike fires and 28 e-scooter fires in London last year – marking a 53% increase from 2022.

Adrian Simmonds, practice leader for property risk solutions at QBE Insurance, echoed Winckler’s and Collins’ concerns.

He said: “Lithium-ion batteries have become the predominant type involved in difficult to contain fires due to their widespread use and the potential for thermal runaway – an exothermic reaction that produces intense heat, flame, flammable gases and toxic fumes.

“The inability to suppress thermal runaway means fires are likely to be larger and more difficult to contain, leading to greater severities.”

A thermal runaway occurs when the electrical current passing through a cell or battery during charging or overcharging raises the cell’s temperature, leading to an increase in current flow and a further temperature rise. This process can cause lithium-ion batteries to catch fire.

Simmonds continued: “The proliferation of lithium-ion batteries means there is expected to be an increase in battery-related fire frequency.”

Claims

Due to the nature of thermal runaways, property insurers are concerned about a “stark increase” in fire claims.

“In domestic settings, a single malfunctioning device can lead to a fire that might destroy an entire building,” Winckler said.

For instance, Axa UK’s claims data for 2022, published 18 August 2022, indicated that lithium-ion fires most commonly occurred in residential buildings.

The data revealed that one large claim involved a faulty e-scooter battery that, while being charged in a kitchen, exploded and spread fire throughout the home, reaching two storeys above.

Meanwhile, Zurich reported last year (26 June 2023) that claims for lithium battery fires have tripled over three years.

Most recently, on 10 January 2024, Aviva reported a 7% increase in claims related to fires caused by lithium-ion batteries.

James Allenby, managing director of Novo Insurance, explained that the rise in these types of fire claims is due to the widespread use of poorly made or inadequately tested lithium batteries.

“For example, many e-scooters are built in the Far East to questionable standards. This is why the market is seeing a rise in fire claims related to lithium batteries,” he said.

Winckler noted that on 22 January 2024, the government’s Office for Product Safety and Standards issued a withdrawal notice to China-based e-battery manufacturer UPP because it was linked to several fires across England.

He continued: “Society may have an expectation that legally sold consumer products containing lithium-ion batteries will be virtually fail-safe, but as we have seen, that is not always the case.

“At Kennedys, we are seeing an increase in claims involving lithium-ion [batteries] and fear this may continue on an upward trajectory for some time.”

Policies

Due to these newer fire risks, Winckler noted that insurance policies “need to adapt to reflect the increased threat”.

David Jones, director of underwriting, property and packaged at QBE Insurance, agreed. He stated that because fires caused by lithium-ion batteries are a “new and emerging risk”, insurance companies needed to adjust their prices to account for it.

However, Simmonds admitted that despite the insurance industry’s concerns about the rise in these claims, it has yet to differentiate between lithium-ion batteries and other battery types when it comes to coverage.

Jones added: “In practice, the risk of a lithium-ion battery fire is seen as no greater than many other potential sources of fire loss.

“As such, specific restrictions on coverage due to the presence of lithium-ion batteries have been very limited.”

Lithium batteries use cases are still emerging in daily lives and the full implications for the insurance industry are not yet fully understood. While there is an observable rise in claims linked to these batteries, insurers remain uncertain about how best to address this new risk.

Although fire claims have increased, the insurance sector has not yet differentiated between lithium-ion battery fires and other fire causes in policy wordings. For now, all fire incidents, including those caused by lithium batteries, fall under standard home insurance policies.