Increased cost of working Vs Additional Increased cost of working


Increased cost of working (ICOW) is a built in cover under Fire loss of profit policies and it is not required to be taken as Add-on cover separately.

I have seen people asking for it as Add-on cover which is not correct because it is part and parcel of FLOP policies. It covers additional expenses incurred by insured with sole Intentions to save loss of Gross Profit for the insurance company by bringing the damaged property back into operation earlier than scheduled start of operations. This reduces the length of interruption period and saves insurer's liability towards Loss of GP suffered by insured.

However, such expenses can be recovered up to a certain limit known as Economy limit. It emphasizes that insured cannot be paid more than the loss of GP saved for the insurance company.
For example if by incurring  a sum of Rs 10 lacs, insured mitigates Loss of GP to the extent of Rs 6 lacs then Insured will be eligible to get receive max. of Rs 6 lacs towards ICOW and remaining 4 lacs would not be paid to him because this is in excess of what he has saved for the Insurance co.

In order to overcome this situation Additional Increased cost of working (AICOW)  Add on cover is granted under Large risk policies and insured is required to select the Loss limit for this add on cover.
This Add-on cover pays for additional expenses reasonably and necessarily incurred by insured with the sole intentions of avoiding or minimizing the reduction in turn over that means with the sole intention of saving the loss of gross profit under the policy. Additional expenses can be paid up to the limit selected by insured without the application of economy limit. However, if expenses incurred are of Capital nature which have been incurred for purchase of asset then its residual value at the end of max. Indemnity period, shall be taken into account before making payment under this head.

For example, let us assume that indemnity period selected under FLOP is 12 months and Loss limit opted by insured under Additional Increase cost of working is Rs 50 lacs. During interruption period, in order to avoid production loss, Insured purchases a DG set for Rs 25 lacs then for calculating the amount payable under this head, Residual value of DG at the end of 12 months period, shall be deducted from total payable amount.

In the instant case if the residual value of DG set is found to be Rs 18 lacs after 12 months period then insured will get only Rs 7 lacs in place of Rs 25 lacs incurred as ICOW.



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