Question: Additional Increase in Cost of Working only cover for an electrician?

Hello Allan, hope you are well. I am going crazy not being able to go fishing or camping, but we all hope this will be over soon. I have a BI (Business Interruption) question for you.

Let’s say an electrical contracting business with 50 tradies, all operating out of their utes. Their building, where they have their offices and storage warehousing, burns down. They immediately start operating from another location and the boys keep working from their utes, so turnover is still coming in.

I always struggle to justify these risks having BI, because they wouldn’t be able to claim loss of income. If I had additional increased cost of working only (AICOW), would that still apply?

They have a large T/O so the BI premium is massive. In this case I have elected to have a GP figure of $1 and insured the AICOW at $500,000 plus extra claims prep, so we can involve you guys.

Regards

Scott [surname and email provided]

Hi Scott,

The strategy you have adopted would appear to be sound and is what I suspect many insurance brokers would do.

There is just one thing to be careful of and is if a large percentage of the Insured’s income came from one customer, say, a large shopping centre. Let us assume they had the contract to do all the electrical maintenance at Chadstone Shopping Centre in Melbourne, or Chatswood Shopping Centre in Sydney. These are huge complexes but the same could be the case if they looked after an airport, or other large industrial or commercial complex.

If that site had a fire –or other major event– and they did not get the contract to do the reinstatement, where would they be financially? If it would mean their insurable gross profit would fall then my advice would be to purchase full business interruption insurance.

The same could apply if they are heavily dependent on a single supplier. For example, if a big chunk of their work is installing solar panels or Tesla batteries. If the supplier had a major loss and could not supply, would this cause a problem?

Dependency risk should always be considered in any business interruption insurance review.

As for the $1 sum insured, unless this is a requirement of the placement platform or of the insurer, technically it is not necessary.

As there are significant differences in Additional Increase in Cost of Working covers in business packs, you just need to double check that the coverage you have in place does not have an economic limit test or a sole purpose test. If it has neither and there is not a dependency on a major client or supplier that cannot be replaced quickly, then I feel that while there may be a small loss of gross profit based on what you have told me, an insured should, if they hold some cash in the business, be able to get through it without the need for full insurance.

I do have to remind you and the readers that this is only general advice, and it is vitally important that the individual risks of each and every client are considered, so that the necessary tailored advice is provided to each and every insured.