In a business interruption policy, what is the term for expenses that vary directly with turnover?

In a business interruption policy, expenses that vary directly with turnover are referred to as specified working expenses. These expenses are closely tied to the level of business activity or sales. When turnover increases, these expenses rise, and similarly, when turnover decreases, these costs fall. This could include costs such as raw materials, direct labor associated with production, and other costs that are incurred in proportion to the amount of business activity.

Understanding this concept is crucial in assessing claim amounts under a business interruption policy, as it allows for a more accurate evaluation of losses sustained due to the interruption. Specified working expenses differ from fixed operating costs, which remain constant regardless of the level of sales activity. This distinction helps to ensure that claims are processed in accordance with the actual impact on a business's operations and finances during a period of disruption.