Common household items containing lithium-ion batteries are being thrown out with the regular trash — whether unknowingly or for convenience — leaving waste and recycling operators with a hidden risk and costly insurance headache.

Cellphones, drones, e-cigarettes, laptops and toys are among the items being discarded in household garbage or recycling bins and transferred to material recovery facilities where batteries can ignite during the sorting process.

Waste and recycling businesses are seeing property insurance rate hikes, capacity limits and higher deductibles in part due to the rising frequency and severity of fires from lithium-ion batteries, sources say. Fire detection and suppression technologies are helping companies reduce the risk and differentiate their operations to insurers, they say (see related story below).

“Batteries are in everything now, and the general public is not well-informed on how to dispose of them,” said Pam Caron, Boston-based senior vice president, waste and recycling practice leader, at Risk Strategies Co.

Waste and recycling facilities have all the materials to feed a fire, so it’s “a perfect storm,” Ms. Caron said. Numerous clients have seen their properties burn to the ground, and total losses due to battery-related fires are not uncommon, she said.

Many property insurers have exited the market and quota-shared and layered programs are typical. It took 12 insurers to get to the $40 million limit that a prospective client recently sought, Ms. Caron said.

Higher deductibles have become standard. “A few years ago, we could find programs with deductibles of $50,000 to $100,000; now, most are quoted with deductibles of $250,000 or more,” Ms. Caron said. Risk Strategies forecasts property rate increases of 10% to 75% for the sector in 2025.

Fewer insurers underwrite the risk, and those that will have become very selective, said Dan Curran, Portsmouth, New Hampshire-based senior vice president and underwriting officer at Amwins Program Underwriters Inc.

Insurers “want all the details of the occupancy, what they’re recycling, how they do it, what controls they have in place for screening material, and the fire safety, protection and recovery plans,” Mr. Curran said.

Capacity has been reduced, prices are “up in the multiples,” terms and conditions have tightened, and limits are lower, he said.

Insurers don’t want to take on more than a $1 million to $5 million slice of a layer in a property program, said Richard E. Rabs, Chicago-based vice president of risk management at Lakeshore Recycling Systems LLC.

“It has to be a structured program where the layers are shared,” and those layers come at a higher cost, Mr. Rabs said.

LRS has invested $3 million in Fire Rover, an advanced fire detection and suppression technology, and spends an additional $500,000 annually to maintain the system, he said, adding, “It’s not inexpensive technology, but we feel strongly that we need to do something to combat lithium-ion batteries.”

Fire claims are affecting commercial auto, general liability and workers compensation lines, too, several sources said.

Lithium-ion batteries damaged in waste collection and compacting create fire risks for trucks in addition to facilities, said Josh Wilson, Reno, Nevada-based senior consultant, property and casualty, environmental, at Axa XL, a unit of Axa SA.

“The battery itself might not explode or catch fire, but it heats up. When that battery heats up and gets compacted with the other refuse, that’s where the fire occurs, and that’s what we call a hot load,” he said.

Vehicle fire claims can be particularly expensive for insurers because of rising replacement costs. “I rarely see one that is replaced or that catches fire that’s not a $200,000 claim,” Mr. Wilson said.

When lithium-ion batteries ignite, the fires can be hard to extinguish, said Craig Stromgren, Topeka, Kansas-based president of World Safety Consulting, a World Insurance Associates company.

“They’re mixed in with other materials. It’s hard to isolate them,” and the fires can’t be put out with a regular extinguisher, he said.

From a regulatory perspective, there are gaps between federal and state regulations for the recycling and disposal of batteries and in some instances in companies’ understanding of those regulations and the hazards, said Michael Kline, Denver-based executive vice president, partner at CCIG.

“It’s a no man’s land,” he said.

Many batteries are labeled with a chasing arrows symbol that tells consumers to dispose of them in a recycling bin, but they are supposed to be recycled through a separate channel, said Jerry Sjogren, senior director of safety at the Recycled Materials Association in Washington.

“There are avenues to recycle these batteries safely, that can help us keep them out of the stream,” and educating the public on this issue is critical, Mr. Sjogren said.

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Fire-spotting, suppression tech crucial

Investing in fire detection and suppression technologies can help mitigate the risks associated with waste processing of lithium-ion batteries, experts say.

Detection technology acts as a “watchdog,” finding and extinguishing fires on the tipping floor, where trucks unload materials to be processed, said Richard E. Rabs, Chicago-based vice president of risk management at Lakeshore Recycling Systems LLC.

“Our buildings tend to be tall, so fire suppression systems like sprinklers are 30 feet in the air. How big do you think that fire needs to be before the sprinkler system goes on?” he said.

Some larger entities use thermography cameras to determine heat sources and spots in materials when a load enters a facility, said Josh Wilson, Reno, Nevada-based senior consultant, property and casualty, environmental, at Axa XL, a unit of Axa SA.

Operators should ensure they have robust fire and smoke detection systems and round-the-clock monitoring at facilities, said Craig Stromgren, Topeka, Kansas-based president of World Safety Consulting, a World Insurance Associates company. Employee training in fire safety and response is critical, he said.

“If the system detects the fire in its early incipient stages, it might be able to be put out more quickly or moved outside of the facility,” preventing a loss, Mr. Stromgren said.

Fire detection and suppression technologies are often a differentiator regarding whether an insurer will look at a risk, said Pam Caron, Boston-based senior vice president, waste and recycling practice leader at Risk Strategies Co.

“They’re expensive, there’s no doubt about it, but we’ve been able to get insurers to not charge a premium on the system,” Ms. Caron said.