AICOW & ICOW Terrorism Insurance: Additional Cost Coverage

Introduction

Terrorism remains one of the most unpredictable and potentially devastating risks facing UK businesses today. While many commercial insurance policies include standard terrorism coverage, the financial impact of a terrorist incident extends far beyond direct property damage. Additional Cost of Working (AICOW) and Increased Cost of Working (ICOW) terrorism insurance represent critical protection mechanisms that safeguard businesses from the hidden costs of recovery following a terrorism-related event.

This comprehensive guide explores how AICOW and ICOW terrorism insurance work, why they matter for your business, and how they fit into a robust risk management strategy.

Understanding Terrorism Risk in the UK

The UK has experienced significant terrorism threats over the past two decades. From vehicle-borne attacks to armed incidents, terrorist activities have impacted businesses across multiple sectors, including hospitality, retail, financial services, and transportation.

The financial consequences of terrorism extend beyond immediate property damage. Businesses face:

• Temporary closure and loss of revenue

• Increased operating costs during recovery

• Supply chain disruptions

• Customer loss and reputation damage

• Additional expenses for alternative premises or operations

• Accelerated rebuilding and restoration costs

Standard commercial insurance policies often provide limited coverage for these indirect costs. This is where AICOW and ICOW terrorism insurance becomes essential.

What is AICOW (Additional Cost of Working)?

Additional Cost of Working (AICOW) terrorism insurance covers the extra expenses a business incurs when operating from alternative premises following a terrorism-related incident that damages or makes the original premises unusable.

Key Features of AICOW Coverage

Alternative Premises Costs: AICOW covers rent, utilities, and operational expenses for temporary alternative premises while your main location undergoes repair or reconstruction.

Increased Operating Expenses: This includes additional staff costs, transportation expenses, and other operational overheads necessary to maintain business continuity from an alternative location.

Accelerated Restoration: AICOW can cover the additional costs of expediting repairs and restoration work to return to your original premises faster, minimising business interruption.

Equipment and Fixtures: Temporary equipment rental, furniture, and fixtures needed to operate from alternative premises are typically covered.

Relocation Costs: Expenses associated with moving operations to temporary locations and back to your original premises are included.

Coverage Limits and Periods

AICOW policies typically operate on an indemnity basis, meaning they reimburse actual costs incurred up to the policy limit. Coverage periods usually extend for 12 to 24 months following a terrorism-related incident, though this varies by insurer and policy terms.

The sum insured under AICOW should reflect your realistic additional operating costs during recovery. Underestimating this figure can leave your business significantly exposed.

What is ICOW (Increased Cost of Working)?

Increased Cost of Working (ICOW) terrorism insurance is closely related to AICOW but operates slightly differently. ICOW covers the additional costs of working at reduced capacity or from alternative locations following a terrorism-related incident.

Key Differences Between AICOW and ICOW

While AICOW focuses on costs incurred when operating from alternative premises, ICOW provides broader coverage for increased operating expenses when business operations are disrupted but not completely halted.

Partial Operations: ICOW covers situations where your business continues operating but at reduced capacity due to terrorism-related damage or disruption.

Increased Efficiency Costs: Additional expenses incurred to maintain operations at reduced levels, such as overtime payments, expedited shipping, or premium supplier rates, are covered.

Market Share Protection: ICOW can help cover costs associated with retaining customers and market position during recovery periods.

Flexible Coverage: ICOW often provides more flexible coverage than AICOW, adapting to various operational scenarios following a terrorism incident.

How AICOW and ICOW Work Together

In practice, AICOW and ICOW often work in tandem to provide comprehensive protection:

Immediate Aftermath: ICOW covers increased costs of maintaining reduced operations while damage assessment occurs.

Transition Period: As alternative premises are secured, AICOW coverage activates to cover relocation and setup costs.

Recovery Phase: Both coverages may apply during the recovery period, depending on operational circumstances.

Return to Normal: Coverage continues until operations fully return to normal capacity and location.

This layered approach ensures businesses maintain financial stability throughout the entire recovery process.

Coverage Scope and Exclusions

What AICOW and ICOW Typically Cover

• Rent and occupancy costs for alternative premises

• Utilities and facility management expenses

• Staff wages and recruitment costs

• Equipment rental and temporary fixtures

• Transportation and logistics expenses

• Communication and IT infrastructure

• Insurance and professional fees

• Accelerated repair and restoration costs

• Temporary staffing and overtime

• Customer retention and market protection costs

Common Exclusions

Most AICOW and ICOW policies exclude:

• Losses resulting from war or civil unrest (though terrorism is typically included)

• Losses from strikes, riots, or civil commotion (unless specifically covered)

• Losses from nuclear, chemical, or biological incidents

• Losses arising from failure to maintain insurance

• Losses from inadequate business records

• Losses from failure to implement reasonable security measures

• Losses from non-compliance with policy conditions

Understanding these exclusions is crucial for comprehensive risk management.

Industry-Specific Applications

Hospitality Sector

Hotels, restaurants, and pubs face significant AICOW and ICOW exposure. A terrorism incident affecting a hospitality venue can result in:

• Loss of bookings and revenue

• Staff redeployment costs

• Alternative venue rental for events

• Accelerated restoration to maintain market position

AICOW and ICOW coverage ensures these businesses can maintain operations and recover market share quickly.

Retail Operations

Retail businesses, particularly those in high-footfall locations, benefit significantly from AICOW and ICOW protection. Coverage helps:

• Secure temporary retail space in alternative locations

• Maintain customer relationships during relocation

• Cover increased operational costs during recovery

• Protect against permanent customer loss

Financial Services

Banks, insurance offices, and professional services firms require robust AICOW and ICOW coverage due to:

• Regulatory requirements for business continuity

• Critical nature of operations

• High costs of alternative premises in business districts

• Significant reputational implications

Transportation and Logistics

Companies in the transportation sector face unique AICOW and ICOW considerations:

• Alternative depot and facility costs

• Vehicle rerouting and logistics expenses

• Increased fuel and operational costs

• Customer service and retention expenses

Calculating Appropriate Coverage Levels

Determining the right AICOW and ICOW sum insured requires careful analysis:

Assessment Process

Operational Cost Analysis: Calculate your monthly operating expenses, including rent, utilities, staff costs, and other overheads.

Alternative Premises Research: Investigate typical costs for temporary premises in your area that could accommodate your operations.

Recovery Timeline Estimation: Determine realistic timeframes for returning to normal operations following a terrorism incident.

Increased Cost Projection: Calculate potential additional expenses during recovery, including accelerated restoration and premium supplier rates.

Contingency Buffer: Add a contingency buffer (typically 20-30%) to account for unexpected costs.

Formula for Sum Insured

A practical approach involves:

(Monthly Operating Costs × Expected Recovery Period in Months) + Alternative Premises Costs + Accelerated Restoration Costs + Contingency Buffer = Recommended AICOW/ICOW Sum Insured

For example, a business with £50,000 monthly operating costs, expecting a 12-month recovery period, facing £30,000 monthly alternative premises costs, and £100,000 in potential accelerated restoration costs would calculate:

(£50,000 × 12) + (£30,000 × 12) + £100,000 + 20% contingency = approximately £1,056,000 recommended sum insured.

Claims Process and Documentation

Preparing for a Potential Claim

Effective claims management begins long before an incident occurs:

Maintain Detailed Records: Keep comprehensive records of business operations, expenses, and financial performance.

Document Assets and Equipment: Maintain inventory lists and photographs of business premises, equipment, and fixtures.

Establish Baseline Metrics: Document normal operating costs, staffing levels, and operational capacity.

Create Business Continuity Plans: Develop detailed plans for alternative operations, including identified temporary premises and supplier contacts.

Regular Policy Reviews: Ensure coverage limits remain appropriate as your business evolves.

Claims Submission

Following a terrorism-related incident:

1. Notify Your Insurer Immediately: Report the incident to your insurer as soon as possible, even if damage appears minor.

2. Preserve Evidence: Maintain all documentation related to the incident, including photographs, police reports, and incident timelines.

3. Document Additional Costs: Keep detailed records of all additional expenses incurred, including receipts, invoices, and timesheets.

4. Provide Financial Records: Submit profit and loss statements, payroll records, and operational expense documentation.

5. Cooperate with Investigations: Work fully with your insurer's loss adjusters and investigators.

6. Submit Formal Claim: Provide a comprehensive claim statement detailing all losses and supporting documentation.

Cost Factors and Premiums

AICOW and ICOW terrorism insurance premiums depend on multiple factors:

Premium Determinants

Business Type and Sector: Higher-risk sectors such as hospitality, retail, and financial services typically face higher premiums.

Location: Businesses in high-profile locations or areas with elevated terrorism risk face increased premiums.

Sum Insured: Higher coverage limits result in proportionally higher premiums.

Claims History: Previous claims, particularly terrorism-related claims, impact premium calculations.

Security Measures: Robust security protocols and business continuity planning can reduce premiums.

Building Construction: Modern, resilient building construction may attract lower premiums.

Business Continuity Plans: Documented and regularly tested business continuity plans can result in premium reductions.

Cost Management Strategies

• Implement comprehensive security measures

• Develop and regularly test business continuity plans

• Maintain accurate business records and documentation

• Review coverage annually to ensure appropriate levels

• Consider risk management consultancy

• Explore multi-policy bundling discounts

Integration with Overall Risk Management

AICOW and ICOW terrorism insurance should form part of a comprehensive risk management strategy:

Complementary Coverages

Business Interruption Insurance: Covers loss of profit following insured events, complementing AICOW and ICOW coverage.

Property Insurance: Covers direct damage to buildings and contents, working alongside AICOW and ICOW for comprehensive protection.

Cyber Insurance: Protects against terrorism-related cyber attacks and digital disruption.

Crisis Management Insurance: Covers costs associated with managing reputational and operational crises following terrorism incidents.

Risk Mitigation Measures

• Implement robust physical security systems

• Develop comprehensive business continuity plans

• Establish alternative supply chain arrangements

• Maintain emergency communication protocols

• Conduct regular risk assessments

• Train staff in emergency procedures

• Maintain adequate financial reserves

Choosing the Right Provider

Selecting an appropriate insurer for AICOW and ICOW terrorism coverage requires careful consideration:

Key Selection Criteria

Specialist Expertise: Choose insurers with demonstrated expertise in terrorism risk and business interruption coverage.

Claims Reputation: Research insurers' claims handling records and customer satisfaction ratings.

Financial Stability: Verify insurers' financial ratings and stability through ratings agencies.

Policy Flexibility: Seek insurers offering customizable coverage options tailored to your business.

Support Services: Look for insurers providing risk management support and business continuity planning assistance.

Competitive Pricing: Obtain quotes from multiple insurers to ensure competitive pricing.

Conclusion

AICOW and ICOW terrorism insurance represent essential protection for UK businesses operating in an environment of ongoing terrorism risk. By covering the additional and increased costs of working following a terrorism-related incident, these policies ensure businesses can maintain operations, recover quickly, and protect their market position.

The key to effective AICOW and ICOW protection lies in:

• Understanding the specific coverage provided by each policy type

• Calculating appropriate sum insured based on realistic operational scenarios

• Integrating terrorism coverage with comprehensive business interruption and property insurance

• Implementing robust risk management and business continuity measures

• Maintaining detailed records and documentation

• Regularly reviewing coverage to ensure continued adequacy

For businesses across hospitality, retail, financial services, transportation, and other sectors, AICOW and ICOW terrorism insurance provides the financial resilience necessary to navigate the aftermath of a terrorism-related incident and emerge stronger.

By taking a proactive approach to terrorism risk management and securing appropriate AICOW and ICOW coverage, your business can focus on growth and success, confident in the knowledge that comprehensive protection is in place.