This document provides an overview of property and industrial risk insurance policies at an intermediate level. It discusses all risks property insurance policies, different methods for setting sums insured, indemnity clauses, exclusions, policy wordings, and case studies. The document outlines coverage under sections I and II for material damage and business interruption. It also explains general exclusions, conditions regarding definitions, warranties, inspections, claims procedures, subrogation, and periods of insurance.

1. PROPERTY / INDUSTRIAL
RISK INSURANCE
INTERMEDIATE LEVEL

2. Contents
 All risks policy wordings
 The pros and cons of different
methods of setting the sum
insured and its impact of claims
 Indemnity, Reinstatement Day
One Reinstatement, Valued
Policies, First Loss, Deductibles
and Other
 Clauses that effect value
 Assess EMUPML factors and
retention levels
 Industrial Special Risk policy
wordings and some extensions
cover
 Case studies

3. INSURANCE POLICY
WORDINGS
INTERMEDIATE LEVEL

4. Property / Industrial All Risk Insurance
 Covers All Risks of Physical Loss, Destruction
or Damage to the insured property
occurring during the policy period subject
to terms, conditions and exclusions.
 Wider coverage than Fire and Allied Perils
Insurance Policy.
 In Indonesia, we usually use Munich-Re PAR
/ lAR wording.

5. Coverage
The Policy form consist of:
a)
Section I - Material Damage
b)
Section II - Business Interruption
The cover In its widest from will Include the
following perils/covers:

Fire and all Special Perils

Burglary

Machinery Breakdown/ Boiler Explosion/ Electronic Equipment Insurance

Business lnterruption (Fire and all Special Perils) .

6. Coverage Section of Material Damage
 Cover:

unforeseen, sudden and accidental physical loss
destruction or damage at the premises(s)

other than those specifically excluded in the General or
Special Exclusions.
 In a manner necessitating repair or replacement,
 Indemnify

In cash, replacement or repair (at the Insurers' option)

Up to an amount not exceeding the sum insured or in
any one event the limit of indemnity where applicable

7. Coverage – Section 1: Material
Damage (Cont)
Property insured will include:
i.
Buildings, Contents
ii.
Stocks and materials in trade
iii.
Furniture, Fixtures, Fittings, Office and Business
Equipments
lv.
Plant, Machinery

8. Coverage – Section II: Business
Interruption
 Covers all the premises specified/listed in the Schedule
which Is interrupted or interfered with in consequence
of loss destruction or damage indemnifiable under
Section I.
 Indemnify the Insured for the amount of loss as
hereinafter defined resulting from such interruption or
interference
 provided that the liability of the Insurers in no case
exceeds the total sum to be insured

9. All Risk Type
 PAR/IAR has predominated in the property insurance market because of the
benefits it provides to both Insureds and Insurers.
 For Insureds, the All-Risk Form eases concerns about gaps in coverage;
 For insures;, it promotes efficiency by reducing the probability of underwriting
the same risk mutiple times.
 which party bears the burden of proof :
 Insureds generally bear the burden of proving that coverage for a particular
cause of loss Is triggered, while
 Insurers bear the burden of proving any exceptions to coverage. When an
exclusion applies, the burden usually shifts back to the Insured to establish any
exceptions to the exclusion.

10. General Exclusions

1
Perang, invasi, tindakan musuh asing, permusuhan atau operasi
menyerupai perang (baik perang dldeklarasikan atau tidak) atau perang
saudara :

Kerusuhan, pemogokan, penghalangan pekerja, tindakan
jahat, penjarahan, pembangkangan, huru-hara, pembangkltan
militer, pembangkitan rakyat, pemberontakan, revolusi, kekuatan militer
atau pengambil-alihan kekuasaan militer, penyitaan, pengambil-alihan
atau nasionalisasi, tindakan terorisme. "Terorisme„‟ berarti penggunaan
kekerasan untuk tujuan politik dan termasuk penggunaan kekerasan
apapun dengan tujuan untuk membuat publik atau bagian dari publik
dalam ketakutan

11. General Exclusions (Cont)
2

Radiasi ionisasi atau kontaminasi oleh radioaktivitas dari bahan bakar
nuklir atau limbah nuklir dari pembakaran bahan bakar nuklir

Bahan peledak beracun radloaktif atau barang berbahaya lain dari
bahan peledak nuklir rakitan atau komponen nuklirnya
3

Tindakan sengaja atau kelalaian sengaja Tertanggung atau wakilnya

Penghentian pekerjaan total atau parsial
4

12. General Condition – Section I & II
1. Definition
2. Policy
Avoidance
3. Berakhirnya
Polis
4. Warranties
lkhtisar
Bagian dan
Endosemen
dan
Kuesioner
dianggap
menjadi
kesatuan
pada dan
bagian yang
tidak
Polis ini dapat
menjadi tidak
berlaku
dalam hal
salah
deskripsi,
salah
penyajian
atau tidak
diungkapkan
nya setiap
Bagian I polis ini
menjadi tidak berlaku
berkenaan dengan
Harta Benda yang
diasuransikan
terdapat suatu
perubahan setelah
berlakunya asuransi ini
karena pemindahan,
risiko meningkat, atau
kepentingan
tertanggyng berakhir,
kecuali diakui oleh
Penanggung secara
tertulis.
Bagian II Polis ini
menjadi tidak berlaku
Setiap janji
yang
disyaratkan
(express)
atau mungkin
disyaratkan
sejak saat
Janji tersebut
melekat
(lmplied)
selama

13. General Condition – Section I & II
(Cont)
5. Reasonable
Precautions
6. Right of
Inspection
Tertanggung
harus melakukan
segala tindakan
pencegahan
yang wajar untuk
mencegah
kerugian
kehancuran atau
kerusakan
Wakil penanggung
pada tiap waktu
berhak menginspeksi
dan mengkaji risiko
dan Tertanggung
harus memberikan
kepada wakil
Penanggung semua
keterangan rinci dan
informasi yang
diperlukan untuk
penilaian risiko.
7. Claim
Procerudes
Menjaga bagian yang
terkena dampak kerugian
dan membuatnya tersedia
untuk diinspeksi oleh
penanggung;
Menyerahkan semua
informasi yang diminta oleh
Penanaggung
Segera memberitahu
polisi/pihak yang
berwenang dalam hal
kehilangan atau kerusakan
karena pencurian atau
pembongkaran atau
kerusakan akibat
perbuatan jahat
Tertanggung tidak berhak
mengabandon harta
benda kepada
Penanggung baik yang
diambil alih oleh
Penanggung atau tidak
Tidak ada klaim yang
dapat dibayar kecuali
syarat-syarat dari Kondisi ini
telah dipenuhi.
Jika suatu klaim curang
dalam hal apapun atau
jika cara curang digunakan
oleh Tertanggung atau
yang mengatasnamakan
dia maka semua manfaat
berdasarkan polis ini
menjadi hilang.

14. General Condition – Section I & II
(Cont)
8. Indemnity
9. Interest
Payment
10. Mediation/
Arbritation
11. Subrogation
• Penanggung akan
mengembalikan posisi
keuangan Tertanggung
sebelum kerugian terjadi,
tidak lebih baik, tidak
lebih buruk.
• Penanggung mengganti
kerugian melalui
penggantian atau
perbaikan atau
pembayaran nilai
kerugian.
• Penanggung berhak
untuk menahan ganti
rugi jika ada keraguan
dan sehubungan
dengan hukum pidana.
Penanggung tidak
bertanggungjawab
membayar bunga
selain bunga karena
gagal bayar.
Klausul yang
menyediakan sarana
untuk menyelesaikan
perselisihan antara
tertanggung dan
perusahaan asuransi.
•
•
•
Penanggung
memperoleh hak
kepemilikan atas
kerugian yang telah
dibayarkan oleh
Penanngung.
Penanggung dapat
melaksanakan hak
hukum yang
dilasanakan atas nama
Tertanggung.
Penanggung berhak
menuntut kepada
pihak yang
menyebabkan kerugian
untuk jumlah yang
dibayarkan dalam polis.

15. General Condition – Section I & II
(Cont)
12. Other Insurance
13. Period
• A loss is to be apportioned •
among insurers when
more than one policy
covers the same loss.
• Some policies provide no
coverage when other
insurance is in place some •
pay a pro rata share, and
others apply in excess.
• Comply with the principle
of indemnify which states
than an insred should not
•
profit from an insured loss
The period of Insurance is
one year. Inception and
expiry shall both be 12
o'clock noon at the
dates entered in the
Schedule.
The insurance is
automatically renewed
for a year. unless Insurer
or Insured request in
writing
the termination at the
expiry date, giving 30
days notice.
14. Average
In instances of
underinsurance, i.e. if a
sum insured is less than
the value to be insured,
the indemnity may be
proportionately reduced.

16. General Condition – Section I & II
(Cont)
15. Deductible
16. Sum Insured
• This policy does not cover the
• The sum(s) insured shall not be
amounts of the deductibles stated in
reduced by any indemnity
the Schedule In respect of each and
payments.
every loss as . ascertained after the
• (STANDARDS)
application of all other terms and
conditions of the policy Including
any condition of Average.
• Warranted that the Insured shall
not effect Insurance In respect of
the amounts of the deductibles
stated in the Schedule.

17. General Conditions (More Slides)
14. Average

The Policy shall be subject to condition of average.

Section l:
Under Insurance on each item Insured will be considered as being
own Insurer for the difference

Section ll:
Provided that If lhe sum Insured by this item be less than the sum
produced by applying the Rate of Gross Profit to the Annual Turnover
(or to a proportionately increased multiple there of where the
Maximum Indemnity Period exceeds twelve months) the amount
payable shall be proportionately reduced.

18. General Conditions (More Slides)
15. Deductible

The number of deductibles applicable to a loss can be a cause of
contention (argument).

This is particularly the case where there are potentially multiple causes
of the property damage and business Interruption

Example of flood, wind or storm, the policy would normally defined
wheter flood, wind or storm constitutes one occurence, and therefore
one deductible is payable by the Insured, by reference to a temporal
limit, for for example 72 hour. Multiple occurences would impact upon
the number of deductibles and affect the amount paid by the
insured, insurer or reinsurer.

On the particularly large losses, where there are excess layers on both
insurance and reinsurance levels, this can create significant Issues due
to the varying Interests Involve

19. General Conditions (More Slides)
16. Sum Insured

Amount fixed In the policy which usually serves for three purposes:




as policy limit of liability
In the application of average
for premium calculation
Sum Insured under section I relates to:


Building, Machineries, Furniture, Fixtures, Fittings &
Electrical Installations shall be on Reinstatement Value
basis only;
The Stocks shall be covered on Market Value basis.

20. General Conditions (More Slides)

Calculation of the sum Insured under Section I takes the following Into account:

Historical fugures are used but the bussines interruption lnsurance Insures future
losses ( trends and plans)

The maximum lndemnity period

Business interruption may start any time -o.g. end of Insurance period

Business lnterruption policy Insures Gross Profit

Insured's last published financial statements are used In determining Gross Profit

The Gross Profit Is adjusted for inflation and any known events that may affected the
business results a.g. Pending installation of new machineries or plants to increase
production.

The length of the Indemnity period will also be considered. Annual figures need to be
proportionately Increased for periods longers than a year.

lnterruption may occur at any time even on the last day of Insurance. This means
that an lndemnity period at least 12 months more than what is required should be
applied. For 12 months - use a trend of 2 years ahead, etc.

21. Special Exclusions – Section I
Loss destruction of or damage to:
1. Property in the course of construction or erection
2. Property being worked upon and actually arising from the process of manufacture,
testing, repairing, cleaning, restoring, alteration, renovation, or servicing
3. Property in transit by road, rail, air, or water
4. Licened road vehicles, railway locomotives and rolling stock, watercraft, aircraft,
spacecraft, and the like
5. Jewellery, preious stones, precious metals, bullion, furs, curiosities, rare books, or works
of art
6. Standing timber, growing crops, animals, birds, fish

22. Special Exclusions – Section I
7. Land (including topsoil, backfill, drainage, or culvert), driveways, pavements,
roads, runways, railways lines, dams, reservoirs, surface water, underground
water, canals, rigs, wells, pipelines, cables, tunnels, bridges, docks, piers,
wharves, mining property underground, offshore property
8. Property in the possession of customers under Rental Aggrements or Hire
Purchase, Credits, or other Suspensive Sale Agreements
9. Property which at the time of the happening of loss descruction or damage
is insured by or would but for the existence of this policy be insured by any
marine policy or policies.

23. Special Exclusions – Section I (Cont)
Loss destruction of or damage to the property insured directly or
indirectly caused by or arising out of or aggravated by:
Delay loss of market or other consequential or indirect loss or
damage of any kind or description whatsoever
Dishonesty, fraudulet act, truct, device, or other false pretence
Disappearance unexplained or inventory shortage

24. Special Exclusions – Section I (Cont)
Loss destruction of or damage to the property insured directly or
indirectly caused by or arising out of or aggravated by:
4. Joint leakage, failure of
welds, cracking, fracturing, collapse or
overheating of
boilers, economisers, super
heaters, pressure vessels, or any range
of steam and feed piping in conection
therewith mechanical or electrical
breakdown or derangement in respect
of the particular machine apparatus of
equipment in which such breakdown
or derangement originates.
If leakage or seepage of water (including
humidity or vapor) occurs for a period of
longer than 14 days, damage to real property
caused by the seepage may be excluded
from coverage
A “mechanical breakdown” of the moving
parts of machinery will also be excluded if the
breakdown results from intemal defects in the
machinery.
This exclusion, which is based upon the notion
that fortuitous losses are not covered, applies
to perils that are intrinsic to or hidden within
the property itself

25. Special Exclusions
The 'wear and tear" exclusion precludes coverage for
normal or ordinary damage to property that occurs
over the period of its useful life.
The related exclusion for "corrosion" excludes
coverage for rust, decay, and deterioration of
property.
These exclusions relate to the broader concept of
'inherent vice or latent defect‟.
The "mold' exclusion, for which questions of causation
and ensuing loss are particularly important to the
coverage analysis.
5. All gradually operating causes,
including but not limited to wear
and tear, rust, corrosion, mildew,
mould, fungus, wet or dry rot,
gradual deterioration, latent
defect, inherent vice, slowly
developing deformation or
distortion, incects larvae or
vermin of any kind, microbes of
any kind, unless sudden and
unforseen physical loss
destruction or damage ensues in
which case insurers liability sall
be limited to such ensuing loss
damage or descrution.

26. Intrepeting Special Exclusions (Cont)
 Viewed in that light, losses falling within the scope of the exclusion for wear and tear are
not risks at all, but rather Inevitable consequences.
 Consensus that these types of losses are not to be covered explains why there are so very
few decided cases concerning the precise scope of the exclusion.
 One decision that does provide some guidance in this area is Cyclops Corp. v. Home
Insurance Co.,51 where the Court stated:

Construing the words "wear and tear” In their everyday common usage, we are
convinced that the words "wear and tear” mean simply and solely that ordinary and
natural deterioration or abrasion which an object experiences by Its expected
contacts between Its component parts and outside objects during the period of Its
natural life expectancy.

When the insurer does rely upon the wear and tear exclusion, the insured will argue
that the deterioration is remarkable or extraordinary, thereby removing the loss from the
Intended scope of the exclusion

27. Special Exclusions – Section I (Cont)
THE "INHERENT VICE" EXCLUSION
"Inherent vice” (sifat natural dari objek itu sendiri) generally involves internal
decomposition or some quality which brings about an object‟s own damage or
destruction.
The inherent vice exclusion simply restates the need to demonstrate that a loss
arose from an “external cause”. If the property contains the seeds of its own loss
then the loss cannot be treated as the result of an external cause.
To the extent that a policy expressly requires proof of an external cause
(i.e., “all risks of direct physical loss of or damage ... from any external
cause except as hereinafter provided”), the exclusion is superfluous.

28. Special Exclusions – Section I (Cont)
THE “LATENT DEFECT" EXCLUSION
The “latent defect” exclusion is intended to preclude indemnity if the loss or
damage to the insurable property is attributable to a defect which could not
be discovered by known or customary tests.
The purpose of the exclusion Is to ensure that the insurer does not become a
guarantor of the quality or fitness of the insured's property. That function is
performed through enforcement of the contractual obligations which the
supplier of the property owes to the insured.

29. Special Exclusions – Section I (Cont)
"Latent Defects" and "Design Defects"
It is generally recognized that “latent defect” does not embrace "design
defect”. In Mattis v. State Farm Fire & Casualty Co., it was indicated that
"latent defect" was limited in its scope to any defects in the materials used for
construction and did not include matters of design or construction.

30. Special Exclusions – Section I (Cont)
5. MECHANICAL OR ELECTRICAL BREAKDOWN OR DERANGEMENT IN OR
ON THE PREMISES, UNLESS FIRE ENSUES
There has been some progress by the courts with respect to the Interpretation of terms such as "mechanical
breakdown" and "derangement". As will be seen below, the courts have attempted to resolve the uncertainty
surrounding these terms by examining them in light of the rest of the policy and by looking at the context in
which the policy was drafted.
For example, in Jeffrey v. Insurance Corporation of British Columbia, 34
In reaching its conclusion, the court was guided by decisions in two similar cases and quoted the following
paragraph from a British Columbia Court of Appeal decision: 34 ( “Mechanics/ breakdown, It seems to me, must
be interpreted in the circumstances of this case and in its context as a failure in operation due to some
mechanical defect In some parts or parts of the equipment when properly assembled to constitute a crane.
Here the figure to operate was due to negligence in assembling the machine so that it could function as an
operating unit... There was an operating failure not due to any mechanical defect but to negligences”

31. Special Exclusions – Section I (Cont)
6. Pollution or
contamination unless
caued by fire, lightning,
explosion, aircraft, or other
aerial devices or articles
dropped there from riot,
civil commotion, strikes,
locked out workers,
persons taking part in
lapour disctubances,
malicious persons (other
than thieves), earthquake,
storm, flood, escape of
water from any tank,
apparatus or pipe or
impact by any road
vehicle or animal.
The scope of the “pollution”
exclusion, has been the subject of much
dispute.
In the property insurance context, most
courts limit the exclusion to
“environmental pollution” as that terms is
commonly understood.

32. Special Exclusions – Section I (Cont) –
Mulai dari sini
7.
Enforcement of ordinances or
decisions by a government
authority. The "ordinance or
law“ excusion precludes
coverage for losses related to
compliance with building
codes, for example, while the
"governmental authority"
exclusion precludes coverage
for seizure, condemnation, or
confiscation of property by a
government actor.
Enforcement of any ordinance or law regulating
the costruction, repair or demolition of any
Property Insured hereunder except as provided for
in the public authorities memorandum
incormorated in this Section
8.
Shrinkage, evaporation, loss of weight, change in
flaour, colour, texture or finish, action of light
9.
Change in temperature or humidity, failure or
inadequate operation of any air conditioning
cooling or heating system due to operating error.
The burden of proof that no operating error
occurred, shall be upon the Insured
10. Exposure to weather conditions where property is
left in the open or not contained in fuly enclosed
buildings

33. Special Exclusions – Section I (Cont) –
Mulai dari sini
FOR THE COST:
1. Of rectifying defective materials, faulty
workmanship or design
2. Of normal upkeep, normal making good,
maintenance
3. Arising from false or unautorised
programming, punching, labelling or
inserting, inadvertent cancelling of
information or discarding of data media
and from loss information caused by
magnetic fields.
The faulty workmanship and
faulty design exclusions are
commonly disputed in the
construction industry. Some
courts
limit
the
faulty
Workmanship exclusion to
defects in the final product,
while others apply the
exclusion to all losses
caused by negligence during
construction, even those
caused by third parties

34. Special Conditions – Section I
2. BASIS OF LOSS
SETTLEMENT
1. SUM
INSURED
The Sum
Insured shall
not be less than
the cost of
reinstatement
The indemnification under this section shall be
the reinstatement or replacement of the
property loss destroyed or damaged.
•
•
Rebuilding or replacemet of property loss
or destroyed to a condition equivalent to
or substantially the same as but not better
or more extensive than its condition when
new.
The insurer shall not be liable for the
difference between the actual cash
value and the reinstatement costs unless
reinstatement commences ad proceeds
without unreasonable delay

35. Special Conditions – Section I
3. First Loss
Insurance
4. Debris
Removal
Coverage of
additional cost
items in a
property policy.
e.g. debris
removal cost, for
which a full
Value cannot be
assessed.
Avemga does
not apply.
5. Capital
Additions
Coverage for
the cost of
removal of
debris of
covered
property
damage by an
insured peril.
This coverage is
included in most
commercial
property
insurance
pollcies
This Insurance extends to cover:
• Any newly acquired assets
• Alterations, additions, and
improvements of the Insured
assets during the current
period of lnsurance at any of
the Insured premises provided
that
• Each location this Increase
shall not exceed 5%of Sl per
Item
• To advise Insurers within 3 mils
of the particular of any such
capital addition and pay such
additional premiums as the
Insurers may require

36. Special Exclusion – Section I
1. This policy does not cover any loss resulting
from interruption of or interference with the
business directly or indirectly attributable to:
i. Any resctiction on reconstruction or
operation impossed by any public authority
ii. The insured‟s lack of sufficient capital for
timely restoration or replacement of
property lost, destroyed, or damaged
iii. Loss of business due to causes such as
suspension, lapse, or cancellatuon of a
lease licence or order etc. which occurs
after the date when the items lost destoyed
or damaged are again in operating
condition and the business could have
resumed, if said lease license or order etc
had not lapsed or had not been suspended
or cancelled
2. This Policy does not cover the deductible stated
in the Schedule to be bome by the insured.

37. Basic of Insurance – Section II
Reduction of Turnover
The sum produced by applying the Rate of Gross Profit to the amount by which the
Turnover during the Indemnity Period shall fall short of the Standard Turnover In
consequence of the loss destruction or damage
Increase on Cost Working
The additional expenditure necessarily and reasonably incurred for the sole purpose
of avoiding or diminishing the reduction In Turnover which but for that expenditure
would have taken place during the Indemnity Period In consequence of loss
destruction or damage, but not exceeding the sum produced by applying the Rate
of Gross Profit to the amount of the reduction thereby avoided

38. Basic of Insurance – Section II
Reduction of Turnover
Menurunnya omset perusahaan

Basis of Insurance: the policy will set out the basis upon which the business
Interruption claim is to be calculated.

Often this is limited to the 'loss of Gross Profit, due to the Reduction In Turnover.

However, there may be the option of presenting a claim on an output
alternative or loss of production Income basis.

The basis on which the claim is presented can impact slgnificanly upon the
resources and skill sets required for the calculation of the loss, as well as the
amount of the loss.

Often the starting point of the calculation will be to look at the financial year
immediately before the date of damage In order to assess standard turnover or
output.

39. Reduction of Turnover - EXAMPLE
Basic of Insurance – Section II

40. Basic of Insurance – Section II
Increase on Cost Working
Increase on cost working are incurred
to:
 Reduce the severity of the BI loss
 Reduce the duration of te
interruption
• The policy allows for additional costs to be incurred in order to
prevent a loss of Gross Profit arising, but not exceeding the
amount that would be payable If lhe latter did transpire. This Is
known as the 'economic limit’.
• Overtime working by staff to avoid a loss of Turnover is a good example.

41. Definition
1. GROSS
PROFIT
2. UNINSURED
WORKING
EXPENSES
Means the amount by
which:
1. The sum of the
turnover and the
amount of the
Closing Stock shall
exceed
2. The sum of the
amount of the
Opening stock and
the ninsured working
expenses
The variable expenses of the business which
are not insured by this policy:
a. Turnover and prchases taxes
b. Purchases (less discout received)
c. Carrlage, packing and freight
The fundamental rule is:
• The only expenses that should be listed as
uninsured are those that, in each insured‟s
own unique cost structure, are so totally,
directly variable that they will always be
saved in proportion to any lost sales
• There should be no reduction of fixed
cost, such as production labour or fixed
factory overheads.

42. Definition
3. DIRECT OR INDIRECT
COST
 Direct cost include those cost which directly related to the cost of
production of goods for sale, and thereore represent a cost of Sale
 Indirect cost, or overheads, include expenses such as administration,
nonproduction payroll, rent and insurance also referred to as “standing
charges” or “continuing costs”

43. Definition
Examples of Fixed
Costs:
Examples of Variable
Costs:

Office expenses such as supplies, utilities, a
telephone for the office, etc.
 Materials used

Salaries and wages of office staff,
 Direct labor

salespeople, officers and owners

Payroll taxes and employee benefits
 Packaging

Advertising, promotional and other sales
expenses

Insurance

Auto expenses for salespeople

Professional fees

Rent.

Normal Depreciations/ Amortization
 Freight
 Plant supervisor salaries
 Utilities for a plant or a warehouse
 Machinery

44. Definition
4. INDEMNITY
PERIOD
3. TURNOVER
The money (less
discount allowed) paid
or payable to the
Insured for goods sold
and delivered and for
services rendered in the
courses of the business
at the Premises
This is the period for
which insurer will
provide any indemniy
It starts with the date of
damage and continues
for as long as the
business is affected by
the damage, but
limited to the maximum
period states in the
policy Schedule

45. Definition
5. ANNUAL
TURNOVER
6. STANDARD TURNOVER
(HISTORICAL STANDARD)
The sum derived by adjusting
the Turnover obtained in the
Business during the 12 months
immediately before the date of
the damage to provide for
trends, variations or other
circumstances:
a. Affecting the business either
before or after the damage
or
b. Which would have affected
the business had the
Damage not occurred
The sum representing the
turnover during that period in
the 12 months immediately
before the date of the Damage
which corresponds with the
Indemnity Period, to which
adjustments are made to
provide for trends, variation, or
other circumstances:
a. Affecting the business either
before or after the damage or
b. Which would have affected
the business had the
Damage not occurred

46. Basic of Insurance – Section II
HOW DO YOU CALCULATE THE REDUCTION IN
TURNOVER?

The turnover during the period of Interruption is subtracted from the turnover achieved in the same
period last year (the Standard Turnover).

Particularry for manufacturing businesses, a reduction in turnover has a corresponding reduction in the
cost of business e.g. material costs, freight, packaging etc.

Therefore, the difference, or reduction In turnover is multiplied by the rate of gross profit.

The rate of gross profit is the procentage of the business turnover that was gross profit in the previous
financial year.

The sum of the reduction In turnover and the rate of gross profit would give a straigh forward
mathematical answer to the value of the first part of the claim.

Unfortunately though, it is not quite that simple. The definitions of Standard Turnover and the rate of
gross profit usually include very broad adjustment clauses which allow trends and circumstances both
before and after the property damage to be taken into account

47. Basic of Insurance – Section II
SIMPLE EXAMPLE

48. Basic of Insurance – Section II
Increased Cost of Working - ICOW
Add. Increased cost of working -AICOW

ICOW This is additional expenditure reasonably and necessarily incurred by the insured
for the sole purpose of avoiding or diminishing the loss in turnover as a consequence of
the damage subject to economic limit

There may be an extension to the policy which provides an Indemnity or the costs
Incurred by the insured which are In excess of the limits provided under the policy or the
increased cost of working. This Is known as the additional increased cost of working.

A key issue in respect of daims Involving these elements is documentation of the
decision making process and costs, often omitted in the haste to get back to business.

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