Lithium-Ion Batteries: Widespread Use and Risk Management in the Insurance Industry
Lithium-ion (Li-Ion) batteries are a key technology in the energy transition and digitalisation. They are found in everyday devices such as smartphones, laptops, electric vehicles (EVs) and renewable energy storage systems. Their efficiency and versatility have driven their exponential growth, but they also present risks that require a proactive management approach.
An Expanding Market with Growing Risks
The lithium-ion battery market is growing rapidly. In 2023, more than 100,000 lithium-ion batteries were sold. 1.2 billion smartphones, 242 million laptops and 135 million tablets, all powered by this technology. In the automotive sector, sales of electric vehicles reached 1,000 14 million units in 2023, up 35% from 2022. In addition, renewable energy storage capacity using lithium batteries in the US nearly quadrupled from 5.5 GW in 2021 to 20.7 GW in 2024, reflecting its importance in stabilizing electrical grids.
Main Risks Associated with Lithium-Ion Batteries
Despite its benefits, this technology poses significant risks that affect consumers, businesses and insurers.
1. Thermal overflow and fire risk
One of the most critical risks is the thermal runaway or thermal runaway, a process in which a battery overheats uncontrollably, potentially causing fires or explosions. This can occur due to:
· Internal short circuits due to manufacturing defects.
· Excessive charging or discharging of the battery.
· Blows or physical damage.
· Use of non-certified or incompatible chargers.
Example: In New York, fires caused by lithium batteries have increased alarmingly. In 2023, 92 fires caused by these devices left 64 injured and 9 dead, a figure comparable to the combined total for 2021 and 2022. In the UK, fire services recorded 270 fires related to electric bikes in 2023, in front of the 158 of 2022, prompting the London Fire Brigade to brand e-bikes “the fastest growing fire risk in the city”.
2. Risks in aviation and transportation
Lithium batteries pose a challenge in air and sea transport. The US Federal Aviation Administration (FAA) has registered 55 incidents on commercial flights in 2022 alone, most of which involve personal electronic devices.
ExampleIn 2020, a fire on a maritime cargo ship carrying electric vehicles caused millions of dollars in damage due to the uncontrollable spread of the fire from the car batteries.
Due to these incidents, airlines and regulators have imposed restrictions on the transport of lithium batteries, requiring stricter safety measures, such as prohibiting their transport in the hold or requiring fireproof packaging.
3. Manufacturing defects and design flaws
Manufacturing errors can result in defective batteries that increase the risk of fire. Contamination of internal components or incorrect assembly can lead to internal short circuits and dangerous failures.
Example: In 2016, Samsung had to withdraw the Galaxy Note 7, following multiple incidents of fires caused by battery failures. This problem caused losses estimated at $5.3 billion and damaged the brand's reputation.
In the automotive sector, manufacturers are facing similar challenges. An accident involving an EV can result in a total loss of the vehicle, as many insurers choose to replace the entire battery in the event of damage, making claims more expensive.
4. Geopolitical dependence and vulnerability in the supply chain
Lithium and cobalt, essential materials for these batteries, are mined and processed in a limited number of countries, creating supply risks. China dominates more than 100% of the world's lithium production. 70% of the lithium refining market, making it a key player in the global chain.
Example: Growing geopolitical tension and demand for batteries have led the EU and the US to develop strategies to diversify their sources of materials, promoting mining in their territories and the creation of alternatives such as sodium batteries.
Implications for Risk Management and the Insurance Sector
The rise of this technology is forcing insurers to re-evaluate their coverage policies and risk models. Companies must implement security measures throughout the value chain, including:
· Continuous battery monitoring in its life cycle.
· Risk mitigation plans for storage and transportation.
· Compliance with safety regulations that are constantly evolving.
· Recycling and waste management strategies, since the increase in demand will generate a large number of out-of-service batteries.
Insurers must adapt their policies to address emerging risks, from home fires to industrial disasters or transport issues. Rapidly evolving regulations, such as the new EU regulatory framework for batteries approved in 2023, will require a constant monitoring of legal obligations to avoid unexpected liabilities.
Conclusion
Lithium-ion batteries will continue to be fundamental in the energy transition and sustainable mobility, but their mass adoption brings with it challenges that must be addressed with sound risk management strategies. The insurance industry plays a crucial role in mitigating these risks, promoting safety in the manufacturing, transportation and use of this technology.
A collaborative and proactive approach between manufacturers, insurers and regulators will ensure safe and sustainable development of lithium batteries in the coming years.
