
Lithium-ion Battery Fires on the Rise: The Insurance Challenges You Can’t Ignore
This article explores why insurers are cautious about covering businesses handling lithium-ion (Li-ion) batteries and what you can do to mitigate risks.
Whilst commuting to work late in January 2025, PNOinsurance Managing Director, Mathew Lethborg noticed a thick plume of smoke rising in the distance. After scanning local news reports, it became clear that the smoke was from another lithium-ion (Li-ion) battery-related fire in Cheltenham, Victoria. Unfortunately, incidents like this are becoming more common, raising serious concerns for business owners, insurers, and regulatory bodies.
Li-ion batteries are widely used across industries due to their efficiency and long lifespan. However, their fire, explosion, and safety risks pose significant insurance challenges. If your business relies on Li-ion batteries for equipment, vehicles, or storage, understanding these risks and their impact on insurance is crucial. This article will explore why insurers are cautious about covering businesses handling Li-ion batteries and what you can do to mitigate risks.
ABC News share details about Melbourne warehouse fire fuelled by lithium-ion batteries.
The Growing Use of Lithium-ion Batteries in Industrial Settings
Many blue-collar industries, including construction, logistics, and warehousing, increasingly rely on Li-ion batteries, and it’s no wonder, as they have many advantages, including:
- Longer lifespan and efficiency – Outperforming traditional lead-acid batteries.
- Faster charging times – Reducing downtime for critical operations.
- Lower maintenance requirements – No need for frequent fluid refills or extensive upkeep.
Despite these benefits, insurers remain wary due to the associated risks.
The Insurance Risks Associated with Lithium-ion Batteries
Insurance companies assess risks based on the likelihood and severity of potential claims. Li-ion batteries present multiple hazards that increase premiums or lead to policy exclusions. Some of these risks include fire and explosions, transportation hazards and other environmental risks.
Fire and Explosion Risks
- Thermal runaway – If a battery overheats or is damaged, it can trigger an uncontrollable reaction, releasing heat and toxic gases.
- Difficult to extinguish – Fires involving Li-ion batteries often require specialized suppression methods and can reignite hours after being put out.
- Warehouse and facility risks – Storage areas require advanced fire suppression systems, adding to operational costs.
Transportation Hazards
- Classified as hazardous materials – Strict regulations apply for air and sea transport, limiting shipping options.
- Accident – Collisions or overturning of vehicles carrying batteries may lead to fires, explosions, or hazardous chemical spills.
- Thermal runaway – Damage during transport (e.g., punctures or crushing) can trigger thermal runaway, leading to fires or explosions.
- Mechanical – Vibrations, shocks, or impacts from uneven road surfaces can damage batteries.
Product Liability and Environmental Risks
- Defective batteries – Manufacturing defects can lead to fires, resulting in expensive recalls and liability claims.
- Electric vehicle (EV) risks – Battery damage in EVs can cause fires hours or even days after an accident.
- Toxic waste concerns – Improper disposal or recycling can lead to environmental liabilities and regulatory fines.
Challenges in Getting Insurance Coverage
Insurers often impose strict conditions on businesses handling Li-ion batteries, which leads to:
- Higher premiums – Businesses face increased costs for property, liability, and transportation insurance.
- Coverage exclusions – Some policies exclude battery-related fire damage or require additional endorsements.
- Stricter underwriting requirements – Insurers may demand proof of fire suppression systems, safety training, and compliance with industry regulations.
Mitigating Lithium-ion Battery Risks and Improve Insurability
Taking proactive steps can reduce risk exposure and help secure favourable insurance terms.
Fire Prevention Measures
- Install fire suppression and detection systems designed for Li-ion battery fires.
- Follow proper storage guidelines, including maintaining safe distances between battery stacks.
- Implement employee training programs to ensure correct handling and charging procedures.
Compliance and Risk Management
- Adhere to the Australian Dangerous Goods (ADG) Code for storage and transportation.
- Use certified battery suppliers that meet strict safety standards.
- Conduct regular safety audits to identify and address potential hazards.
By demonstrating strong risk management practices, businesses can negotiate better insurance terms and lower premiums.
Future Trends in Insurance for Lithium-ion Batteries
As battery technology advances, insurers are adapting their policies. Key developments include:
- Stronger regulatory oversight – Governments are imposing stricter safety and compliance measures.
- Data-driven risk assessment – Insurers use predictive analytics to refine pricing models and identify high-risk clients.
- Specialized insurance products – Emerging coverage options tailored for businesses handling large quantities of Li-ion batteries.
It’s clear that lithium-ion batteries are essential for modern industry, but they do come with significant insurance challenges. Understanding the risks and taking proactive safety measures can help businesses secure appropriate coverage while keeping premiums manageable.
For more information on insurance for lithium-ion batteries, or a no-obligation insurance assessment, contact Mathew Lethborg at mlethborg@pno.com.au or call (03) 9536 7331.