Claims made vs occurrence insurance policies: what is better for your business?
Making that choice can often be a crucial decision for businesses seeking insurance coverage. Each type has its own merits, impacting companies differently based on their unique needs.
This article will serve as your quick guide, explaining the difference between claims made and occurrence policies and exploring their implications on a business.
Claims made policies
Claims made policies are policies that cover claims that arise during a policy period.
They are commonly associated with liability policies, particularly in fields like medical malpractice. The policy was developed to address problems that arose out of the prolonged nature of certain liability cases, where incidents may be discovered many years after they occur.
Claims made policies must remain active for the insurance to respond to a claim. If a claim is made after the policy is canceled, even for an incident during the active period, it won’t be covered.
Add-on features of claims made policies
Not all claims made policies are the same. The following are important considerations:
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Retroactive date
Claims made policies cover claims reported during the active period, however, there may be a limit on how far in the past a incident will have coverage for. Some claims made insurance has no retroactive date (the insurance will respond to anything that happened in the past), but a retroactive date is used if an insurer would like to establish a limit to coverage for prior acts.
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Extended reporting period
Once a claims made policy expires, it won’t cover post-expiry incidents unless an extended reporting period (also known as discovery coverage) is added.
This period is crucial for filing claims after policy expiration, but it only covers events that occurred while the policy was active.
Occurrence based insurance policies
Unlike claims made policies, occurrence-based policies cover claims for incidents that happen during the active policy period, irrespective of when they are filed.
These policies, although more expensive, eliminate the need for tail coverage because they allow claims to be filed for an extended period after the policy expires.
Choosing between claims made and occurrence policies
There are several factors which influence the choice between these policies:
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Availability
Certain insurance has only one type of insurance available. For example, in professional liability, an occurrence policy could be purchased for only the date of a high value transaction and coverage would effectively continue forever. This is not practical for the insurer or for pricing and as such this type of insurance is almost always claims made.
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Future insurance plans
Switching between policy types is easier with occurrence policies, while claims made policies may pose challenges due to retroactive dates and reporting periods.
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Ease
Occurrence policies are generally easier to manage, providing long-term coverage without the need for constant policy renewal.
Which policy is right for your business?
Ultimately, the right choice depends on the business’s size, budget and specific needs.
Careful consideration and professional advice are essential to ensure adequate coverage and protection for your company’s unique circumstances.
Consulting an insurance broker is crucial to understanding the implications of each policy type and making an informed decision.
Experts like Axxima can help assess the risks involved and guide you in selecting the most suitable coverage for your business.
