Business Interruption and AICOW Cover: Everything You Need to Know

Are you confident that your business has the right insurance coverage? It may shock you that a significant number of UK businesses do not! Recent statistics show that 44% of small-to-medium enterprises (SMEs) in the UK don’t have any form of insurance at all, and up to 40% could be underinsured (with 60% of businesses buying their insurance coverage online, you can see how underinsurance can happen!)

Fortunately, it’s never too late to reassess your insurance position and get your business adequately covered. Ascend is here to guide you through both Business Interruption & AICOW Cover – and explain why both are crucial for your business.

What is AICOW?

AICOW stands for Additional Increased Cost Of Working. In most business interruption policies, AICOW is an optional cover, but it’s one a business owner should seriously consider. This cover allows for additional expenditures during a period of interruption, helping you get back on your feet as soon as possible, returning to profit and without causing further inconvenience to your customers.

What is the difference between AICOW and ICOW?

AICOW is often confused with ICOW (Increased Cost of Working.)

ICOW covers increased costs of working that are not more than the loss of revenue that would occur if these costs were not paid. Essentially, it covers economic losses, meaning the expenses incurred must be less than or equal to the revenue saved. ICOW is usually included in Business Interruption policies.

AICOW covers additional costs that exceed the resulting loss of revenue. This means it covers uneconomic losses, where the expenses incurred are greater than the revenue saved. AICOW is an add-on to a Business Interruption policy.

In simplest terms, ICOW is for costs that are justified by the revenue they save, while AICOW covers costs even if they exceed the revenue saved.

For example, after a fire damages a bakery, the bakery rents a temporary kitchen to continue making bread. The rent for the temporary kitchen is covered by ICOW. If the same bakery needs to hire extra staff and expedite shipping to meet urgent orders because of the fire, the costs for these additional measures, beyond what ICOW covers, would be covered by AICOW.

Business Interruption and AICOW

Many business owners ask this question: ‘Why do we need AICOW when we already have business interruption insurance?

The answer? Business interruption insurance can protect you up to an agreed amount with ICOW, but AICOW gives you that extra safety net. AICOW allows access to funds that cover additional expenses beyond the Business Interruption coverage amount. It’s during a claims process that business owners will see the benefit of AICOW cover; instead of scrabbling to find extra cash to cover unexpected expenses, they will be thankful for AICOW and its vital layer of extra protection.

A more detailed AICOW case study

A medium-sized manufacturing company, ABC Manufacturing, produces custom furniture. A severe storm damages their primary production facility, rendering it unusable for six months. The company has standard business interruption insurance, which includes both ICOW and AICOW provisions.

Under their ICOW coverage, they get temporary facility rental so, to continue operations, ABC Manufacturing rents a temporary production facility nearby, orders essential machinery to replace the damaged ones, and arrangements are made for transportation to the new facility for employees. All these measures fall under ICOW and are aimed at maintaining business continuity.

As the recovery period continues, however, ABC Manufacturing faces additional challenges. They now need to access funds from their AICOW coverage. These will be used to cover:

• Specialist consultation - the company hires specialist consultants to expedite the setup of the temporary facility and optimise the production process in the new environment.
• Overtime wages - extra wages are paid to employees working overtime to meet production deadlines.
• Expedited shipping costs - to ensure timely delivery to customers, the company uses express shipping services, which are significantly more expensive than their usual logistics arrangements.
• A marketing campaign - launched to reassure customers about the company's operational status and maintain customer loyalty during the disruption.

These additional expenses above go beyond the usual increased costs of working and are covered by the AICOW provision in ABC Manufacturing's insurance policy. This coverage allows the company to maintain its market position, meet customer expectations and ensure long-term business sustainability, despite the severe interruption caused by the storm.

Do you need Business Interruption and AICOW cover?

Business interruption policies vary significantly as their coverage levels can depend on several factors, and it’s often the case that businesses find sourcing the right business interruption policy a challenge, especially as it isn’t one you can easily buy online. But ultimately, many businesses are at risk of unexpected interruptions to operations and, having the appropriate business interruption policy, coupled with an AICOW cover and tailored specifically to its needs, is hugely beneficial.

How much does AICOW cost?

The price of any insurance policy will vary according to circumstance, but an AICOW cover is usually very good value. It’s worth noting that insurance costs are minimal compared to costs you might face in the future without the right insurance.

Would you like advice on AICOW cover?

Is your business adequately insured? The time might be right to review your risk management and business contingency plans and talk to an experienced broker about business interruption insurance.

At Ascend, we will guide you through the various insurance policies out there and handle claims on your behalf, providing support when you need it most. With years of experience across all types of industries, our team will help you obtain practical coverage that reflects your business needs, allows for an appropriate indemnity period, and comprehensively covers the specific risks of your business.

Get in touch today on 01245 449060 or email Matthew.Collins@ascendbroking.co.uk