Newsletter: BESS insurance: how design decisions, code standards, and market conditions affect your coverage

A few years ago, the key considerations in most developers’ minds when it came to building battery energy storage systems (BESS) were equipment procurement, interconnection, and financing. Insurance, meanwhile, was mostly seen as a downstream requirement to finalize before commercial operation. But the utility-scale storage market has matured faster than the insurance industry can model it, and as BESS scales across U.S. power markets, insurers are taking a much more active role in evaluating project risk.

Coverage and pricing aren’t just determined by project size or replacement value anymore. Insurers are looking at how a system is designed, whether it aligns with evolving safety standards, and how broader market conditions are influencing underwriting decisions across the insurance sector.

This means design decisions like battery chemistry, container spacing, and fire suppression strategy, which once fell primarily on engineers and EPCs, now need to be considered through an insurability lens. It all adds up to a far more complex underwriting environment for BESS developers and investors. Understanding what’s driving underwriting decisions from the outset can help avoid redesigns, financing delays, or coverage limitations later in the project lifecycle.

Design choices are becoming an insurance variable

As battery systems increasingly get larger, project pipelines are also expanding quickly. But BESS is still a relatively young technology, especially at utility scale. That means insurers are trying to evaluate an asset class that doesn’t have a lot of long-term operational and actuarial history compared to more established renewable technologies.

Design and engineering choices have become important variables in BESS underwriting reviews, with a few technical considerations getting particular attention. Fire risk is the biggest concern. Lithium-ion battery fires aren’t the same as conventional fires; a thermal runaway event in a single battery cell can generate intense heat and toxic gases, spreading through nearby units in a way that’s hard for standard fire suppression techniques to control. Insurers thus look very closely at projects’ fire prevention and containment measures.

Battery chemistry

Battery chemistry is a key component of fire risk assessment. Different lithium-ion chemistries vary in how thermally stable they are and how likely they’d be to have a fire spread; this can influence both perceived risk and coverage terms.

Lithium iron phosphate (LFP) systems have become more common partly because they’re more thermally stable than alternative chemistries, like nickel manganese cobalt (NMC). NMC systems have a higher energy density, but they’re more prone to overheating since they store more energy in a smaller space, making heat buildup harder to control under stress conditions. NMC also releases oxygen when it burns at low temperatures, feeding its own fire and making it harder to extinguish.

LFP systems store less energy in the same amount of space, but they’re more stable under high temperatures and don’t release oxygen when they burn. Their chemistry degrades more slowly with repeated charging and discharging, meaning they hold up better over many cycles. And finally, their materials are cheaper and their supply chains more stable than NMC, since they don’t depend on constrained materials like cobalt, nickel, and manganese.

This all makes LFP systems more attractive from an underwriting perspective. But underwriters are also looking at how batteries interact with a system’s broader architecture, monitoring capabilities, and site design.

Site layout and propagation risk

Site configuration is another central focus during underwriting. Insurers look at how battery modules are spaced, fire breaks, and site accessibility to evaluate whether a fire could be easily isolated. The underlying concern isn’t just whether a failure can happen, but whether it can spread across the site and create a large-scale loss event.

That focus can create tension between development optimization and insurance considerations. From a project design perspective, maximizing site density improves land utilization and lowers infrastructure costs. But from an underwriting perspective, tightly-configured systems are much riskier. Insurers may request additional spacing or mitigation measures that affect usable acreage, balance-of-plant costs, or overall project layout. These requirements are particularly relevant for large standalone storage projects where total insured asset values are high.

Monitoring and suppression systems

Underwriters are also looking more closely at layered safety systems. Thermal monitoring systems, off-gas detection, fire suppression technologies, and emergency response integration have become foundational parts of utility-scale storage projects. Many insurers will look beyond whether a system meets minimum technical requirements, assessing how quickly operators can spot problems, respond to failures, and limit damage.

This reflects a broader shift in how BESS risk is being evaluated. Insurers know that no system can completely eliminate thermal runaway risk; instead, underwriting reviews are focusing on whether projects are designed to contain failures and support safe emergency responses if an event occurs.

Operational visibility is also becoming more important. Insurers want to understand how well a project is being managed day to day, including maintenance practices and ongoing monitoring systems. These factors can influence underwriting confidence, especially as projects get older and battery replacements or upgrades become more complex over time.

The growing gap between code compliance and insurance requirements

As the BESS industry matures, codes and safety standards are becoming important reference points across permitting, engineering, and insurance reviews—but complying with standards doesn’t guarantee favorable coverage terms.

The core certification requirement in most markets is UL 9540. This standard evaluates BESS safety as a complete package, setting system behavior requirements under both normal and fault conditions. It includes electrical safety, thermal behavior, and how components like batteries, inverters, and management systems interact.

Insurers also typically require UL 9540A, which is the primary large-scale fire test method referenced in NFPA 855 and the standard most commonly cited by insurers for fire propagation testing. Updated in March 2026, which looks at thermal runaway and fire propagation behavior and is the only consensus standard explicitly cited in NFPA 855 for unit-level, large-scale fire testing (LSFT). NFPA 855 sets requirements for how energy storage systems should be installed and configured to reduce fire risk and protect people and property.

These code standards have improved standardization across the BESS market and given insurers clear technical benchmarks for assessing project risk. However, implementation can vary across jurisdictions. AHJs may interpret fire safety requirements differently depending on local regulations, emergency response capabilities, and permitting practices. That means projects with similar technical configurations may experience different underwriting environments depending where they’re located.

Many insurers are also developing their own underwriting criteria that extend beyond code standards. Some may require additional spacing, enhanced suppression systems, or more robust operational controls than the codes mandate. For example, FM Global, one of the largest property insurers of utility-scale BESS, has published FM Data Sheet 5-33, which establishes requirements beyond NFPA 855 including stricter container spacing, suppression system specifications, and construction standards.

This dynamic shows how fast the storage sector is evolving; while codes and standards advance, insurers are adapting their own risk frameworks based on claims experience, emerging technologies, and changing market conditions.

For developers and owners, that means code compliance should be viewed as a baseline requirement, not a complete risk solution; projects designed to minimum standards may still face underwriting challenges.

Market conditions are tightening the insurance environment

Beyond project-level engineering considerations, broader insurance market dynamics are also affecting BESS coverage availability and pricing.

The fast growth of utility-scale storage has upped the sector’s total insured value, but there’s still relatively little long-term loss data for these systems compared to more established technologies like solar or wind. For insurers and reinsurers, that makes it hard to predict long-term risks and understand how much exposure they’re taking on across their portfolios.

The various types of BESS insurance have different underwriting criteria and trigger different technical requirements; understanding their distinctions is key to managing project-level insurance strategy.

Builder’s Risk (or Construction All-Risk) coverage focuses on installation-phase hazards like fire, weather, equipment damage, and contractor error during construction and commissioning. Once a project is operational, Property/All-Risk policies shift attention toward long-term asset protection, with underwriters scrutinizing thermal runaway mitigation, fire suppression systems, equipment spacing, and compliance with standards.

General Liability and Environmental Liability policies address third-party bodily injury, property damage, and contamination events, particularly relevant for projects near communities or sensitive environmental areas. Finally, Cyber Liability is becoming more important as BESS operators rely on connected BMS and SCADA systems that introduce operational and security vulnerabilities.

High-profile fire incidents like Moss Landing and Otay Mesa have increased concerns about thermal runaway spreading and the difficulty of emergency response. Even though safety standards and system design practices have improved, those events led to a more cautious underwriting environment.

In practice, developers may encounter higher deductibles, stricter exclusions, more detailed engineering reviews, and longer underwriting timelines than before. And in some segments of the market, insurers are becoming pickier about what they insure. Projects using newer technologies, unconventional configurations, or aggressive operational assumptions may face additional scrutiny during coverage negotiations.

These conditions are shaping project development in more direct ways. Insurance assumptions that may have once been treated as relatively stable financial inputs now require closer diligence earlier in the project lifecycle. Delays or changes during underwriting can affect financing schedules, procurement decisions, and overall project economics.

For investors and lenders, insurance is also becoming a more important signal of project quality. Favorable coverage terms show confidence in system design and risk management practices, while restrictive policy language or higher premiums may warrant extra technical review.

Looking ahead

BESS is a critical component of grid modernization and renewable integration across U.S. power markets, and as the sector has matured, insurance has become a key factor influencing how projects are designed and financed.

For developers and investors, this means insurance requirements should be embedded earlier in the project lifecycle, alongside engineering, permitting, and financing decisions. BESS deployments reached a record 51 GWh in 2025, and are projected to increase to 70 GWh this year. Projects that consider underwriting expectations from the outset will be in a better position to get competitive coverage terms and move smoothly through financing and development.