But Does Your Insurance Policy Cover You?

Lithium batteries are now everywhere in both home and business premises. They appear in everything from mobile phones and re-chargers through electric scooters and emergency lighting to motor vehicles including buses, cars and trucks.

The problem with lithium batteries is that they pose unique risks due to their chemical and physical properties, which can lead to hazards such as fire, explosion, and thermal runaway.

The question is, does your current Business Insurance Tasmania policy cover you regarding this recent and increasing risk?

Let’s break these risks down:

Fire and Explosion

Lithium batteries can catch fire or explode when they are damaged, improperly charged, or exposed to excessive heat. The flammable electrolyte within the battery can ignite, leading to a fire that is challenging to extinguish due to the battery’s chemical composition.

Thermal Runaway

This term refers to a self-sustaining, exothermic reaction inside the battery. It occurs when the heat generated by the battery during overcharging or short-circuiting is not dissipated quickly enough, leading to a continuous increase in temperature. As the temperature rises, it can cause further degradation of the battery materials, releasing more heat and potentially leading to a fire or explosion. This process can be triggered by internal cell defects, physical damage, external heat sources, or electrical abuse (like overcharging).

This is doubly dangerous because if a fire starts it can cause the Thermal Runaway reaction in other batteries close buy and the resulting fire can be very difficult to control.

A recent example of an incident involving lithium batteries in Australia (Sydney Morning Herald – Jan 19, 2024) is the case of an e-bike catching fire in a unit in Bondi in NSW due to a faulty lithium ion battery.

These incidents have been reported in various settings, including retail and storage facilities. In the majority of these situations, the batteries have overheated or been damaged, leading to fires. Such incidents underscore the importance of proper battery management and safety protocols, especially in commercial and industrial settings where large quantities of lithium batteries might be stored or used.

Only recently there was a news item on ABC radio about the government looking at ways to make manufacturers of these batteries responsible for their disposal because putting them into normal garbage collection and then compacting them as part of the process can cause explosions and fires.

One of the primary challenges facing insurers is the lack of historical loss data, which makes it difficult to accurately assess and quantify risks associated with lithium batteries.

This situation calls for a more stable market, contingent upon global cooperation on standards to mitigate these risks. Effective risk mitigation is associated with renewed efforts in specific areas such as design, construction, fire protection, and maintenance.

For instance, incorporating firewalls in Battery Energy Storage Systems (BESS) design and using non-combustible materials in construction can help reduce the estimated maximum loss and hence lower insurance premiums. Moreover, adopting best-in-class fire protection and early engagement with fire services can further enhance the insurability of such systems.

In the consumer space, there are several potential issues with Product Disclosure Statements (PDS) relating to lithium-ion batteries. For instance, the use of third-party chargers or charging devices in unsafe environments (like near flammable materials) can void insurance claims. Insurance policies may also evolve to require the declaration of large lithium-ion powered devices.

Additionally, under-insurance is a major issue, particularly because lithium-ion fires can lead to complete losses due to their intense and hard-to-extinguish nature.

For strata-titled properties, it is essential to seek approval from strata management for any electric vehicles (EVs) and to be aware of by-laws related to lithium-ion batteries. Given the complex and evolving nature of these risks, it’s crucial for insurers, consumers, and businesses to stay informed and adapt their strategies accordingly.

The rise in lithium battery usage and associated risks also highlight the need for enhanced risk management and loss prevention measures. Insurance companies and policyholders must focus on mitigating risks through proper handling, storage, and transportation of lithium batteries. This involves being vigilant about the potential signs of battery thermal runaway, like unusual sounds or smells from the battery, and storing them safely.

As the lithium battery market continues to grow and evolve, insurance companies are expected to adapt their policies and coverage to address these emerging risks more effectively. This includes developing comprehensive risk profiles for lithium-ion devices to calculate premiums, coverage, and exclusions.

At RSM Tasmania we will keep you up to date on this developing area with regard to your insurance policies so that you get the best cover specific to your needs.

Talk to Roger Hosie from #RSMTasmania today.

Call Now! (03) 6244 7854, or email roger@rsmtasmania.com.au

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