What are indirect losses that occur as a consequence of a direct loss called?

Indirect losses that occur as a result of a direct loss are referred to as consequential losses. This term captures the financial impact of losses that are secondary or subsequent to the initial event causing damage. For example, if a business suffers damage to its building from a fire (direct loss), the resulting loss of income during the time the business cannot operate due to the damage would be considered a consequential loss.

Consequential losses reflect the broader implications of a direct loss, such as lost revenue, increased expenses, or additional costs incurred while trying to recover from the original incident. It is essential for policyholders to understand that their insurance coverage may or may not include protection against consequential losses. In many cases, separate endorsements or additional policies may be needed to fully cover these types of impacts.

Recognizing the differences between types of losses helps in assessing risk, purchasing appropriate insurance, and ensuring adequate coverage for both direct and indirect impacts from unforeseen events.