Definition:Increased cost of working

💰 Increased cost of working refers to the additional expenses a policyholder incurs to maintain business operations during and after an insured event, typically covered under a business interruption insurance policy. Unlike the indemnity for lost revenue itself, this element addresses the practical reality that keeping a business running—or resuming it quickly—often demands spending above and beyond normal operating costs. Common examples include renting temporary premises, expediting replacement equipment, or engaging additional staff after a fire, flood, or other covered peril disrupts normal operations.

⚙️ Under most business interruption wordings, the increased cost of working is recoverable only to the extent that it reduces the overall business interruption loss. Insurers apply an "economic limit" test: the extra spending must not exceed the loss it avoids. For instance, if a manufacturer spends $200,000 to set up a temporary production line that prevents $500,000 in lost gross profit, the $200,000 qualifies. However, if the temporary arrangement costs more than the revenue it preserves, the excess is typically unrecoverable unless a separate "additional increased cost of working" extension has been purchased. Loss adjusters scrutinize these figures carefully, comparing projected losses with and without the extra expenditure.

📊 Getting this coverage element right has significant financial implications for both insureds and carriers. Undercoverage can force a business to accept prolonged downtime rather than spend money it cannot recover, deepening the economic damage. Overcoverage, or poorly drafted policy language, can lead to disputes during claims handling about what qualifies as a legitimate increased cost versus a betterment or improvement. For underwriters, understanding the insured's contingency plans and cost structures is essential to pricing the business interruption section accurately. Clear policy drafting—distinguishing between ordinary increased cost of working and additional increased cost of working—remains a best practice endorsed by market bodies and reinsurers alike.

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