What Insurance Providers Need to Know About Lithium Battery Risks in Storage and Shipping

As the use of lithium-ion batteries continues to expand across industries—from consumer electronics to electric vehicles to data centers—the insurance industry is facing a growing set of challenges. Businesses that manufacture, store, or ship lithium batteries are not just navigating complex hazardous materials regulations. They’re also working under the scrutiny of insurers who must evaluate and underwrite the risks involved.

Ryan Paquet, former regulator at the U.S. Department of Transportation and now a consultant specializing in hazardous materials, offers a unique perspective. He spent years overseeing approvals and permits in the hazmat space, but since transitioning to consulting, he’s come to better understand the powerful role insurers play in shaping operational safety standards—especially when it comes to lithium batteries.

He admits that, even as a seasoned regulator, he underestimated the influence insurance providers have over operational decisions. “Insurance companies care deeply about how facilities are built, how materials move through them, what’s stored, and how it’s stored,” Paquet said. “Their concern isn’t just regulatory—it’s financial. They’re trying to protect their investment.”

Why Lithium Batteries Are a Unique Risk

Insurance companies have a particular interest in how lithium-ion batteries are managed because of the very real potential for catastrophic fire. When a battery cell enters thermal runaway—a condition triggered by overheating, physical damage, or internal failure—it can ignite, producing intense heat and flammable gases. That fire can quickly propagate through adjacent cells and units, especially in storage environments.

“If one cell goes into thermal runaway, the heat and gases it produces can lead to every other cell in the battery catching fire,” Paquet explained. “Now imagine a full storage rack of those batteries—that fire doesn’t just stay contained, it moves.”

This risk of rapid fire propagation makes lithium battery storage a top concern for insurers. They want to know: If something goes wrong, how do you contain it? Do you have in-rack fire suppression systems? Are the batteries stored in a dedicated building designed to isolate potential incidents? Is the fire suppression media adequate, and have you tested it?

Water, for example, remains the leading extinguishing agent, but it comes with side effects. “If you flood a storage area with water to extinguish a lithium fire, you may end up damaging not just the affected batteries, but everything around them,” Paquet noted. That can turn a localized event into a total operational shutdown.

Insurance providers evaluate these scenarios not just to calculate premiums, but to set the conditions under which they’re willing to offer coverage—or to determine if a facility is insurable at all.

Insurers Often Set Standards Beyond the Code

Regulatory codes like those from the National Fire Protection Association (NFPA) are a baseline. Most insurers go beyond that. Some maintain detailed data sheets outlining their own standards for facilities that handle lithium batteries, covering everything from construction materials to extinguishing systems to isolation protocols.

Paquet recalled how one major insurer required that lithium batteries be stored in a separate structure with its own fire suppression system. Their reasoning was simple: in the event of a fire, the goal is to ensure it doesn’t take down the entire operation—or worse, injure employees.

“Insurance companies are not charities,” Paquet said. “They’re there to be profitable. And that means protecting themselves and their clients from avoidable losses. If you ignore their recommendations, and something happens, they may hold you financially responsible.”

A Missed Opportunity: Collaboration

Beyond risk evaluation, many insurers are actively looking to engage with safety and hazmat professionals. They’re not just setting requirements—they’re also investing in research, evaluating extinguishing agents, and trying to better understand how to prevent lithium battery fires in the first place.

Paquet emphasized that this is an underutilized opportunity. “Insurance companies want to be educated, and they want to work with professionals who understand the technical and operational side of lithium battery risks,” he said. “There’s real value in having a dialogue. If you’re in a facility that stores or ships lithium batteries, don’t just treat your insurer as an auditor—treat them as a stakeholder.”

This collaboration can lead to more tailored insurance programs, better risk management strategies, and ultimately, safer operations. It also ensures that insurance providers remain aligned with the evolving realities of hazardous materials logistics.

Key Considerations for Insurers and Their Clients

For insurance providers working with businesses that handle lithium-ion batteries, here are several focal points:

• • Storage Design: Are batteries stored in a dedicated structure with appropriate fire protection systems?
  
• • Fire Suppression: What extinguishing media is used, and has it been tested for lithium battery fires?
  
• • Fire Propagation Control: Are measures in place to prevent a single incident from spreading?
  
• • Operational Compliance: Does the business follow NFPA codes and any additional insurer recommendations?
  
• • Employee Safety and Training: Are workers trained to respond to lithium battery incidents?
  
• • Incident Response Planning: Is there a clear, rehearsed response plan in case of fire or thermal runaway?
  

As lithium battery use continues to grow, the insurance industry’s involvement will only deepen. For businesses in this space, understanding and addressing these concerns isn’t just a matter of compliance—it’s essential for securing coverage, protecting assets, and avoiding preventable disasters.

Insurance providers and hazmat professionals have a shared interest in managing risk effectively. When they collaborate—openly and proactively—everyone stands to gain.