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)
b)
Section I - Material Damage
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.
ii.
iii.
lv.
Buildings, Contents
Stocks and materials in trade
Furniture, Fixtures, Fittings, Office and
Business Equipments
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
 Perang, invasi, tindakan musuh asing, permusuhan atau operasi
menyerupai perang (baik perang dldeklarasikan atau tidak) atau perang
saudara :
1
 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
4
 Penghentian pekerjaan total atau parsial

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
terpisahkan dari
polis itu.
Polis ini dapat
menjadi tidak
berlaku dalam hal
salah deskripsi,
salah penyajian
atau tidak
diungkapkannya
setiap keterangan
materiil.
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 jika setelah berlakunya
asuransi ini usaha ditutup atau
dijalankan oleh likuidator atau
kurator atau dihentikan secara
permanen atau, kepentingan
tertanggung berakir, risiko
meningkat, kecuali diakui oleh
penanggung secara tertulis.
Setiap janji yang
disyaratkan
(express) atau
mungkin
disyaratkan sejak
saat Janji tersebut
melekat (lmplied)
selama berlakunya
polis, etc

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
• The period of Insurance is one
among insurers when more than
year. Inception and expiry shall
one policy covers the same loss.
both be 12 o'clock noon at the
• Some policies provide no
dates entered in the Schedule.
coverage when other insurance is • The insurance is automatically
in place some pay a pro rata
renewed for a year. unless
share, and others apply in excess.
Insurer or Insured request in
• Comply with the principle of
writing
indemnify which states than an
• the termination at the expiry
insred should not profit from an
date, giving 30 days notice.
insured loss
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 amounts of the
• The sum(s) insured shall not be reduced by any
deductibles stated in the Schedule In respect of each
indemnity payments.
and every loss as . ascertained after the application • (STANDARDS)
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, moul
d, 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
1. SUM INSURED
The Sum Insured
shall not be less
than the cost of
reinstatement
2. BASIS OF LOSS
SETTLEMENT
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:
 Office expenses such as
supplies, utilities, a telephone for the
office, etc.
 Salaries and wages of office staff,
 salespeople, officers and owners
 Payroll taxes and employee benefits
 Advertising, promotional and other sales
expenses
 Insurance
 Auto expenses for salespeople
 Professional fees
 Rent.
 Normal Depreciations/ Amortization
Examples of Variable Costs:
 Materials used
 Direct labor
 Packaging
 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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