Industry What insurers want battery developers to understand right now
Source：pv magazine
Battery energy storage systems (BESS) are not an obscure insurance outlier, and the good news for the battery industry is that as deployments scale and technology matures, underwriters are beginning to see enough data to price risk with more confidence. At the same time, there are enough incidents in the industry to flag new cost drivers and see grey areas in liability emerge.
Oliver Litterick, head of renewables at TMGX (formerly known as GCube Insurance), a global insurer of BESS projects, told ESS News that a balance between optimism and caution, and a constant state of adaption is where the battery insurance market finds itself, but it’s still all taking shape in front of us.
“Are we going to make an underwriting profit over the long term on BESS? The early signs are good,” said Litterick, describing the sector as “still in its embryonic stage,” when compared to traditional areas of insurance. And despite the very large volatile chemicals in use, batteries, he added, big batteries appear more resilient to natural catastrophe exposure than solar and lack the moving parts of wind assets, at least.
Natural hazards remain relatively contained, but fire risk continues to dominate attention. “Generally speaking, the natural catastrophe exposure is pretty limited,” he said, “but we still see ongoing thermal runaway as an area that needs consistent attention.” Standards around spacing, fire barriers, and suppression remain in flux, leaving underwriters to scrutinise every design and technology choice.
How fires impact insurance, and what’s changing
What happens after a battery fire continues long after the headlines and investigations, with the risk one of the biggest cost drivers in the insurance market.
“In the event of a loss where a battery cell burns out, the cost involved in removing that cell and disposing of it safely are sometimes very, very prohibitive,” said Litterick. “The number of contractors actually licensed in the appropriate way to deal with that work are very, very limited. They’ve got a good hold on that market because there’s not many people doing it, and therefore the pricing can be quite prohibitive.”
He said most policies include some allowance for this work, but not nearly enough to absorb the scale of costs now being seen, and caps on payments for this work by insurers can be quickly exhausted. “There is provision within the insurance policy as standard where there is an element of cover for that, but it is usually sub-limited because those costs can escalate very, very quickly,” he said. “As the frequency of fire losses increases, the replacement costs can actually be more than the cost of the replacement cell itself or container itself.”
At the same time, the financial backstop provided by manufacturers is thinning. “We have seen a shift in the levels of indemnification under the OEM’s warranties,” Litterick said. “The actual monetary level of indemnification within those warranties has decreased and in some cases is barely above the deductible that’s within our policy.”
He explained that insurers once relied heavily on the manufacturer’s warranty when writing physical-damage cover, but that link is no longer as firm as it once was. “The insurance product we provide on the physical damage side, forgetting the loss of revenue, is contingent to the manufacturer’s warranty, and the premium is therefore reduced significantly accordingly,” he said. “What the warranty won’t provide is the loss of revenue cover that is a result of the property damage. We cover that on a primary basis and charge accordingly.”
“The issue,” Litterick added, “is that physical damage element we thought we were fully contingent to the OEM’s warranty, and actually we’re not as contingent as we initially thought.”
When pushed to explain why manufacturers are less inclined to contractually offer better warranties, Litterick pointed to factors like a stretched supply chain struggling to provide replacements, tighter margins in the industry, while noting that there’s no clear trend, but it is being noticed.
Supply chains and downtime
On the supply chain issue, it remains a key pressure point for the industry. Litterick said, replacement times are lengthening across established markets, and “we are paying for that downtime,” he noted, as part of the product.
Even where BESS is well understood, sourcing and transporting replacement components can delay reinstatement. In newer markets such as Eastern Europe or parts of Asia, limited local expertise and certification add further time and cost. “If a project can’t export, we are covering that downtime,” he said. “So the longer it takes to get replacement equipment on site and commissioned, the higher the loss of revenue claim.”
What insurers don’t yet cover
When it comes to questions over the extent at which a BESS asset can be used to maximize revenues, while considering lifespan, insurances are firm: throughput loss and degradation remain out of scope. “We do not cover degradation,” Litterick said. “There has to be damage, and degradation would not be defined as damage.” A specialist product for life fade “quite possibly” comes later, but for now the focus remains on physical perils.
Appetite for new chemistries and safety systems is similarly data-led. While a sodium-ion based BESS product may well be able to claim all the chemical equation benefits against a lithium BESS, insurers don’t make leaps of faith.
“We would need to see at least five years of data” on propagation-mitigation systems, he said. TMGX, he said, has insured early sodium-ion projects but applies tighter terms and conditions while waiting for more mature performance data.
Another aspect, around involving third-party battery analytics providing insurers with more security is being looked at, with firms keen to prove to insurers what they can offer, but Litterick wasn’t drawn on how this may evolve in the near-term.
Early engagement pays off
For developers, the message maybe isn’t surprising, but it is consistent: get insurers involved early. “It’s really about getting everyone in the room together,” Litterick said. Pricing and coverage can be structured more effectively when technical details are shared before financial close. “The more we know early, the fewer surprises later.”