Increased Cost of Working Clause (ICOW/AICOW)
The ICOW/AICOW clause governs the extent to which additional expenditure incurred to avoid or reduce a loss of turnover after an insured damage event is reimbursed under a business interruption policy.
- Clause type
- Extension
- Origin/Market
- London Market (LMA/NMA/Lloyd’s)
- Favours
- Insurer
- Negotiability
- Negotiable
Purpose
Increased Cost of Working (ICOW) covers additional expenditure that the insured incurs after an insured damage event for the sole purpose of avoiding or reducing a loss of turnover – for example renting temporary premises, paying overtime or outsourcing production. Additional Increased Cost of Working (AICOW) is an optional extension for extra costs that fail this test but are commercially sensible, usually capped by a separate sub-limit.
Effect and limits
ICOW is traditionally subject to the so-called “economic test”: the additional expenditure is only reimbursed up to the amount of gross profit loss it actually avoids – spend more than the loss avoided, and the insured bears the difference. A “sole purpose test” typically applies as well: the expenditure must be incurred solely to reduce the loss of turnover, not for general business improvement. AICOW removes the economic test within the agreed sub-limit, allowing expenditure that is commercially sensible but not strictly “economic” in the narrow arithmetical sense – for example, retaining a strategically important key account.
Negotiation and practice
In practice, distinguishing ICOW-eligible from non-eligible measures is a frequent point of dispute during claims adjustment; a timely, documented cost-benefit assessment made before the expenditure is incurred materially assists in evidencing the claim. For businesses with strategically significant customers or suppliers whose loss cannot be captured in purely arithmetical terms, agreeing an AICOW sub-limit is an important negotiating objective when structuring the programme.