“My client is an electrical & refrigeration contractor with an ISR policy with both Sections 1 & 2 insured.
A minor amount of sales takes place at their premises being retail and counter sales. 95% of all other business activities are conducted away from the premises on site.
Historically the Insured has had Insured Gross Profit across all their activities however this is overkill as the BI policy would not respond to a claim in relation to site work.
Can the Section 2 cover be structured along these lines:
Insured Gross Profit cover for retail/counter sales as they appear in the Insured’s accounts;
Plus a separate “Increased Cost of Working” first loss limit for all other business activities plus;
Plus a separate Additional Increased Cost of Working limit?
Karl” [surname and email provided]
I responded to Karl the following:
The issue here is more than the insured having a loss at their premises. If there was a prevention of access or wide area damage, then the insured could not trade for a few weeks. Even if it was just one major customer and they could not relocate their major resources to some other work, then they would be funding their wages and the contribution that the sales make to their overheads themselves.
The good thing about an electrician is that if there were to be a fire, or say storm damage, it could be that they do not lose the sale but it is just a delayed sale with the potential for additional sales. It really depends how long it will take before approvals are given before the insured can start as to whether or not they would suffer a loss at all. However, the issue always is how are they going to fund it in the short term? Let’s say it is 3 months that they don’t have any sales, this is not deemed to be an increased cost in working / additional increased cost in working and the insured have to self-fund it themselves.
What they could do is get additional overdraft or some short term loan if they are able to and the interest component would be claimable as an increased cost of working.
I’m not sure what the premium saving that would be achieved is, but in a soft market albeit, I assume this client is in Queensland, I’m just not sure that the saving in the premium is worth the additional risk.
If the Insured is insisted upon taking this approach and if I were the broker I’d be low to be recommending it. You could just declare the revenue at the location where the Insured has their premises, clearly stating that as the only situation and the only profit that is being declared.
One further thing that comes to mind is that if the insured purchases all their supplies through this location and have their write up on the job for the products sales allocated to this location, they may in fact be suffering a loss across their entire business greater than is being suggested by the retailing counter sales and this would need to be looked at carefully.
If this is not an issue then going back to where I was, you would declare your value for retailing and counter sales only, give the location and put the declared amount, being sales less purchases. Then have a figure across all locations for additional increased cost in working, I would recommend that this be for a minimum of 2 years.
You’re not able to have increased cost in working. The reason is the increased cost in working has a series of tests including economic limit test and a soul purpose test which by the fact that you’re not insuring the gross profit at the other locations could never be triggered. The only cover available would be the additional increased cost in working which has no such tests.
I hope this helps.