By Stephen McKay ,
Property Consulting Leader, Marsh Advisory
04/14/2022 · 3 min read
The lithium-ion (Li-ion) battery was first commercialized in 1991, and in the three decades since has come to be used extensively across a number of fields. Today, Li-ion batteries are standard across a variety of industries, from electronics, to clothing, to aviation, to electric vehicles (EVs).
As recent fire events at manufacturing facilities and during transport underscore, Li-ion batteries are not without risk. The base materials used in Li-ion batteries can, under certain circumstances, cascade into what is known as thermal runaway. This happens when concentrated energy is released, typically triggered either by a defect, an electrical or mechanical stress leading to failure, or operation outside of recommended parameters (for example, temperature or charge rate).
The automotive industry has been embracing the use of Li-ion batteries to power its next-generation EVs. However, there have been several widely reported cases of Li-ion batteries self-combusting and engulfing their vehicles while in motion and while at rest.
Extinguishing Li-ion fires — whether at a manufacturing site, a storage facility, or a single vehicle — has caused challenges for fire departments, especially given how lithium reacts with water. Li-ion fires often are more intense and more difficult to control than other types of fires, and could lead to damage to nearby properties. They also can take days or even weeks to extinguish properly — depending on where they occur — and may seem fully extinguished when in reality they are not.
First responders might also face unique dangers in extinguishing Li-ion fires. In addition to the immediate fire and electricity risks, especially when these fires occur at a facility, first responders may be exposed to toxic fumes and hazardous materials and building decontamination issues may need to be addressed.
Overall, fire protection and response standards have not kept pace with the rapid development of Li-ion battery technologies and applications. Because many of the current codes were created before the application of Li-ion battery usage for EVs, they do not necessarily take into consideration the associated EV exposures.
As such a prescriptive, code-based approach to fire protection and response at Li-ion battery and EV manufacturing facilities may not always be sufficient. A performance-based approach that involves identifying risks from the beginning — during the design and construction phases — can provide additional protection. While continuing to adhere to existing codes, manufacturers need to work with municipalities and insurers to gain acceptance for a performance-based approach.
A robust risk management strategy for Li-ion battery and EV manufacturing can help prevent losses from the start, reduce the possibility of production delays or shutdowns following a loss, and eliminate the need to engage in costly retrofits after a loss.
It also can better position manufacturers to secure valuable insurance coverage. However, building an effective insurance program can be a challenge, as many underwriters remain wary of battery manufacturing, storage, and use risks.
Underwriters will want to consider the full range of Li-ion battery and EV manufacturing exposures. For example, battery manufacturers face the prospect of downstream contingent business interruption exposures stemming from their work with EV manufacturers. Being clear on upstream and downstream supply chain impacts will be an important consideration in an insurance submission.
By taking a holistic approach to an insurance and risk management program, Li-ion battery and EV manufacturers can reduce their exposures, proceed with more confidence, and capitalize on the potential opportunities related to growing Li-ion battery use for EVs.