Depreciation per se is neither a fixed cost nor a variable cost. In essence, depreciation is an optional cost, insurable as an item of the policy, at the sole discretion of the proposer/insured.

Main stream insurance practitioners would be horrified to regard depreciation other than a fixed cost because many, if not all, have been programmed to believe, like their predecessors, including those living in a bubble, the mantra that depreciation is part of the standing charges.

The prerogative to insure depreciation, or not, as an optional cost rests with the proposer/insured. Depreciation can be insured as an item on a limit of liability basis much like, inter alia, Additional Increase in Cost of Working and accountants’ charges/fees [1] which are not subject to underinsurance.

Depreciation, as an optional cost, is a novel and innovative concept in Business Interruption insurance, has never been explored at all.

Introduction

This technical paper, Understanding depreciation in Business Interruption insurance — A misunderstood concept, is a study of the meaning, practice, process and application of depreciation as an optional Cost in the Business Interruption insurance. 

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