EXPERT AREAS
Extra Expense & Increased Cost of Working
When an insured event disrupts operations, businesses take immediate steps to keep trading. They hire temporary premises. They source alternative suppliers at premium rates. They pay overtime, expedite repairs and redirect logistics at additional cost. These expenditures are real, they are often substantial and they are frequently the most contested element of a major insurance claim.
The challenge for Insurers and Reinsurers is not whether costs were incurred — they almost always were. The challenge is determining which of those costs are genuinely additional, whether they were reasonable in the circumstances and whether they actually reduced the business interruption loss they were intended to mitigate.
BINOCLE provides independent assessment of extra expense and increased cost of working claims. We apply a rigorous, evidence-based methodology to separate legitimate mitigation expenditure from costs that were ordinary, excessive or ineffective — and we do so with the precision that high-value claims demand.
What We Assess
Extra expense categorization
Not all additional costs incurred during a loss period qualify as covered extra expense or increased cost of working. We review every item of claimed expenditure against the policy wording, the nature of the insured event and the operational context of the business. We classify costs as covered, partially covered or excluded — with clear reasoning for each determination — and identify any costs that have been miscategorised or duplicated across the claim.
The economic limit test
Increased cost of working is recoverable only to the extent that it reduces the business interruption loss. Most policies apply an economic limit: the expenditure must save more in BI loss than it costs to incur. We apply this test rigorously, quantifying the BI loss that was avoided as a result of each category of additional expenditure and comparing it to the cost of that expenditure. Where the economic limit is exceeded, we determine the recoverable proportion.
Temporary facility and alternative premises costs
When an insured relocates to temporary premises during the reinstatement period, the costs involved — rent, fit-out, equipment hire, additional logistics — can be substantial. We assess whether the decision to relocate was commercially reasonable, whether the costs incurred were at market rates and whether the temporary arrangement genuinely maintained the level of output that would otherwise have been lost.
Expediting and acceleration costs
Insureds frequently incur premium costs to accelerate the physical reinstatement of their property — overtime rates for contractors, air freight for replacement equipment, prioritised manufacturing slots. We assess whether these costs were necessary to reduce the indemnity period, whether they achieved that objective and whether they fall within the policy’s coverage parameters for expediting expenditure.
Additional labour and overtime costs
The use of additional staff, extended working hours and temporary labour during the loss period is common and often legitimate. We analyse the insured’s labour records, distinguish between overtime directly attributable to the insured event and pre-existing operational patterns and determine the net additional cost properly attributable to the claim.
ICOW benchmarking
Where the insured’s claimed costs appear disproportionate relative to the scale of the loss or the nature of the business, we benchmark the expenditure against market rates, industry norms and comparable loss scenarios. This benchmarking exercise provides an independent reference point for negotiations and, where necessary, for expert determination.
WHY BINOCLE
Why Extra Expense Claims Are Frequently Overstated
Extra expense and ICOW claims are among the most commonly inflated elements of a major insurance claim — not always through bad faith, but through a systematic tendency to include costs that are normal business expenditure, costs that would have been incurred regardless of the loss and costs that did not actually mitigate the interruption.
Several patterns recur across claims of all sizes and sectors.
Costs incurred before the loss is reported.
Preliminary mitigation steps taken in the immediate aftermath of an event are often poorly documented, making it difficult to distinguish genuine extra expense from routine operational costs. We examine the timing and context of early expenditure carefully.
Costs that would have been incurred regardless.
Businesses sometimes include capital expenditure, deferred maintenance or planned improvements in their extra expense claim, particularly when the reinstatement creates an opportunity to upgrade facilities. These betterment costs are not covered and identifying them requires detailed knowledge of the business’s pre-loss investment plans.
Costs that did not reduce the BI loss.
Expenditure that was incurred with the intention of maintaining output but that demonstrably failed to do so — because the alternative arrangement did not work, because output fell anyway or because the mitigation addressed the wrong bottleneck — does not satisfy the economic limit test and is not recoverable. Identifying and quantifying this category requires concurrent analysis of both the BI loss and the ICOW expenditure.
Overhead allocation and internal recharges.
Large businesses sometimes allocate internal overhead costs — management time, shared services, group recharges — to the claim. We examine the basis of these allocations and determine whether they represent genuine additional expenditure or the reallocation of fixed costs that would have been incurred in any case.
OUR EXPERIENCE
BINOCLE has assessed extra expense and increased cost of working claims across a wide range of loss scenarios and industries.
Our experience includes:
- Major industrial fire and explosion losses where temporary production arrangements were implemented across multiple sites
- Natural catastrophe events where widespread infrastructure damage required coordinated alternative logistics
- Energy sector losses where expediting costs were incurred to reduce turbine and generator replacement lead times
- Retail and distribution losses where temporary warehousing and fulfilment arrangements were established at scale
- Hospitality and commercial property losses where temporary relocation involved complex multi-party arrangements
Our assessments are conducted in parallel with the BI loss quantification wherever possible, ensuring that the economic limit test is applied consistently and that there is no duplication between the two elements of the claim.
HOW WE DO IT
Our Approach
Early identification of ICOW issues
Concurrent analysis of BI and ICOW
Document-level review
Clear, structured reporting
Our reports present the ICOW analysis in a format that is directly usable in claims negotiations. Each category of expenditure is addressed separately, with a clear statement of what is recoverable, what is not and why. Where costs are partially recoverable, we set out the recoverable proportion and the basis for that determination.
Need an independent assessment of extra expense or ICOW on a major claim?
WHY BINOCLE
Frequently Asked Questions
What is the difference between extra expense and increased cost of working?
The terms are often used interchangeably, but in some policy forms they have distinct meanings. Extra expense typically refers to costs incurred by the insured to continue operating that exceed the normal cost of doing so. Increased cost of working refers specifically to additional expenditure incurred to reduce the business interruption loss — and is subject to the economic limit test, meaning it is recoverable only to the extent that it reduces the BI loss by at least an equivalent amount. BINOCLE assesses both elements within the specific framework of the applicable policy wording.
What is the economic limit in an ICOW claim?
How do Insurers identify costs that should not be included in an extra expense claim?
The most effective approach is a document-level review of all claimed expenditure, conducted by a forensic accountant with experience of the patterns by which extra expense claims are overstated. BINOCLE reviews each cost item against the policy wording, tests for costs that are ordinary operating expenditure, costs incurred regardless of the loss and costs that did not actually reduce the BI loss. This review is most effective when conducted early in the claims process, before the insured’s claim schedule becomes fixed.
What documentation is required to support an extra expense claim?
Supporting documentation should include invoices and contracts for all third-party expenditure, payroll records for additional and overtime labour, purchase orders and delivery records for expedited materials or equipment, lease or hire agreements for temporary premises or machinery and any internal cost allocation schedules with their basis of calculation. BINOCLE identifies the specific documentation required on instruction and works with the insured’s finance team to obtain it efficiently.
Is ICOW assessment relevant on all major claims?
On any claim where the insured has taken active steps to maintain operations or accelerate recovery, ICOW assessment is relevant and important. The scale of the extra expense relative to the BI loss varies considerably by industry and loss type — in some sectors, ICOW can represent a significant proportion of the total insured loss. Early identification of ICOW issues and early agreement on what will and will not be recoverable, is consistently the most effective way to manage this element of the claim.