What is the difference between Loss of Hire (LOH) and Extended Loss of Hire (ELOH)

The primary difference between Loss of Hire (LOH) and Extended Loss of Hire (ELOH) insurance lies in the duration of coverage and their roles in protecting against financial losses during downtime.

Key Differences Between LOH and ELOH:

Aspect	Loss of Hire (LOH)	Extended Loss of Hire (ELOH)
Purpose	Provides financial compensation for income lost when an insured asset is out of operation due to damage or covered incidents.	Extends the coverage period after the LOH insurance policy limit is exhausted, addressing prolonged downtime.
Coverage Duration	Typically covers a shorter downtime, such as 30, 60, or 90 days.	Provides coverage for prolonged downtime, extending beyond the maximum period covered by LOH.
Trigger for Coverage	Activated after a deductible period (expressed in days) following a covered incident.	Activated only after LOH limits (time or indemnity) are fully utilized.
Role in Risk Management	Addresses regular operational disruptions and provides primary protection for loss of income.	Acts as a supplemental policy, addressing the risk of unusually lengthy disruptions.
Cost	LOH insurance tends to have lower premiums due to shorter coverage periods.	ELOH is generally more expensive due to the extended risk period.
Common Use Cases	Short-term disruptions caused by repairable damage, mechanical failure, or other insured events.	Prolonged interruptions caused by events like extensive repairs, supply chain delays, or major catastrophic incidents.

Example Scenario:

Scenario:

A shipping company owns a cargo vessel that is involved in a collision and requires extensive repairs. The total downtime is 150 Days.

• Loss of Hire Insurance: Covers the first 90 days after the deductible period, compensating the owner for lost income during this time.

• Extended Loss of Hire Insurance: Takes over after the 90 days of LOH coverage expires, compensating for the remaining 60 days of downtime.

Why Combine LOH and ELOH?

• LOH insurance is suitable for managing the risk of routine or moderate operational interruptions.

• ELOH ensures protection against rare but severe incidents that cause prolonged operational delays.

Together, they provide comprehensive coverage, ensuring businesses are protected from both typical and extraordinary revenue losses.

What is a Loss of Hire (LOH) Insurance?

Loss of Hire (LOH) Insurance is a type of insurance coverage designed to protect businesses against financial losses incurred when their assets (such as vessels, aircraft, or specialized equipment) are rendered inoperable due to damage or breakdown covered under the policy. It is most commonly used in industries like shipping, aviation, and offshore energy, where operational continuity is critical to revenue generation.

Key Features of Loss of Hire Insurance:

1. Purpose:

   • It provides financial compensation for the income lost when an insured asset is unable to operate due to specific perils.

2. Trigger for Coverage:

   • LOH insurance is triggered when a covered event (e.g., collision, fire, machinery breakdown, or grounding) causes downtime for the insured asset.

   • The downtime must exceed a pre-agreed deductible period, usually expressed in days.

3. Indemnity:

   • Compensation is typically based on a fixed daily amount or an agreed percentage of the asset's revenue-generating potential.

   • The policy pays for the number of days the asset is out of service, up to the maximum insured period (e.g., 30, 60, or 90 days).

4. Exclusions:

   • Losses caused by uninsured perils or events outside the scope of the policy (e.g., war, political risks, or unseaworthiness of a vessel).

   • Downtime within the deductible period.

5. Common Sectors:

   • Shipping: For ships, LOH insurance compensates for lost charter hire or freight income if a vessel is damaged and cannot operate.

   • Aviation: Protects airlines or aircraft owners against loss of income if an aircraft is grounded due to a covered incident.

   • Energy: Covers downtime for offshore rigs, drilling equipment, or other specialized machinery.

Benefits of Loss of Hire Insurance:

• Revenue Protection: Ensures financial stability by offsetting revenue loss during operational interruptions.

• Risk Mitigation: Provides a safety net for businesses reliant on continuous operation of high-value assets.

• Business Continuity: Helps maintain cash flow and operational sustainability after an incident.

Example Scenario:

A shipping company’s cargo vessel collides with another vessel and sustains significant damage. The repairs take 45 days to complete. The company’s LOH insurance, with a deductible period of 10 days and a daily indemnity of $20,000, would provide compensation for the remaining 35 days:

35 days × $20,000/day = $700,000 compensation.

Importance of Loss of Hire Insurance:

For industries that rely heavily on the continuous use of costly assets, even a brief period of downtime can result in significant financial losses. LOH insurance helps mitigate these risks, making it a critical component of risk management for businesses in these sectors.

What is an Extended Loss of Hire (ELOH) Insurance

Extended Loss of Hire (ELOH) Insurance is a specialized type of insurance coverage typically used in industries such as shipping, aviation, and energy, where assets like vessels, aircraft, or offshore rigs are central to operations.

Key Features of ELOH Insurance:

1. Purpose: It provides coverage for prolonged periods of operational downtime beyond what is covered by a standard Loss of Hire (LOH) insurance policy. This could result from events such as accidents, natural disasters, mechanical breakdowns, or other covered perils that render the insured asset inoperable.

2. Trigger for Coverage:

   • Similar to standard Loss of Hire, ELOH coverage is activated after a deductible period (expressed in days of downtime).

   • The extended coverage comes into play when the standard LOH policy limits are exhausted, ensuring additional protection.

3. Duration:

   • Standard LOH policies typically cover a limited period, such as 30, 60, or 90 days of downtime.

   • ELOH insurance extends this period, providing coverage for longer disruptions, which may last several months.

4. Indemnity:

   • The policy compensates the insured for loss of income during the extended downtime.

   • The payout is often calculated based on a fixed daily amount or a percentage of expected revenue during the covered period.

5. Common Sectors:

   • Shipping: Covers downtime for vessels due to repairs after damage or major incidents.

   • Aviation: Insures against extended loss of income from grounded aircraft.

   • Energy: Provides coverage for production halts in offshore rigs, refineries, or energy platforms.

Benefits of ELOH Insurance:

• Financial Stability: Protects businesses from severe financial impacts due to prolonged operational losses.

• Business Continuity: Provides a safety net for cash flow and revenue, helping the business recover more effectively.

• Customizable: Policies can be tailored to specific operational risks and the nature of the assets insured.

Example Scenario:

A shipping company’s vessel was damaged in a collision. While the standard Loss of Hire insurance covers the first 90 days of downtime, repairs take longer due to supply chain delays. The Extended Loss of Hire policy would kick in after the 90-day limit, providing additional compensation for the extended downtime. This type of insurance is particularly valuable for businesses with high-value assets and significant reliance on their uninterrupted operation.