Li-Ion battery reliance impact insurers heavily, geopolitical tensions possible

A Li-Ion factory in South Korea exploded and killed 22 people last year.

Lithium-ion (Li-Ion) batteries pose significant risks, particularly for insurers, according to QBE Insurance’s latest report.

Li-Ion batteries power smartphones, laptops, electric vehicles (EVs), and renewable energy storage systems due to their high energy density, long life cycles, and declining costs. 

Also, these outperform other battery types in energy storage, durability, and design flexibility.

Over a billion smartphones sold globally in 2023 relied on these batteries, which also power laptops, EVs, and energy storage systems. 

Despite advancements in safety, risks such as thermal runaway—a condition where overheating triggers fires or explosions—remain critical. 

In 2023, New York City reported 92 Li-Ion-related fires, causing nine deaths and 64 injuries, whilst South Korea faced a factory explosion that killed 22 people.

Manufacturing defects, such as contamination or improper assembly, exacerbate these risks. A high-profile tablet recall in recent years highlighted the danger of battery fires linked to defects. 

Design flaws, including inadequate thermal management, further increase hazards, particularly in larger applications like EVs. 

In the UK, e-bike-related fires rose from 158 in 2022 to 270 in 2023, prompting warnings from the London Fire Brigade.

The reliance on lithium and cobalt makes battery supply chains vulnerable to geopolitical tensions, particularly as China dominates extraction and processing. 

This dependence could lead to supply disruptions and rushed technological solutions, potentially compromising safety. 

Regulatory frameworks, such as the EU's 2023 guidelines on battery lifecycle management, aim to address these challenges but require continuous updates to keep pace with rapid technological changes.

Insurers face mounting risks from Li-Ion battery incidents, ranging from property damage and personal injuries to business disruptions. 

For instance, a battery explosion in a Glasgow recycling plant in June 2023 caused a massive fire, impacting local businesses and residents. 

The risks extend to shipping, where EV fires can endanger crews and cause logistical delays, and public spaces, where malfunctions can lead to significant liabilities.

Manufacturers must implement stringent quality control and comply with evolving safety standards to mitigate risks. Insurers must account for product recalls, legal liabilities, and potential reputational damage whilst staying updated on technological advancements and regulatory changes.