What is Claims-Made Insurance?
In the world of commercial insurance, understanding the nuances between claims-made and occurrence policies is crucial for brokers. Claims-made insurance is a type of liability insurance that provides coverage when a claim is made and reported during the policy period, and the incident must take place after the retro date. This contrasts with occurrence-based policies, which cover incidents that happen during the policy period, even if the claim is made later. For brokers, understanding claims-made insurance is crucial as it affects how coverage is managed and provided to clients.
How Do Claims-Made Policies Work?
Coverage Trigger
In claims-made policies, the coverage is triggered when a claim is made and reported during the policy period. This means that the timing of the claim report is critical.
What If I Require Coverage for Events Prior to the Policy Period?
Claims-made policies can include a retroactive date, which allows coverage for incidents that occurred before the policy’s start date. For example, if a 2024 policy has a retroactive date of January 1, 2020, and a claim is made during the policy period in 2024 for an incident that happened in 2021, the policy will cover it.
What is Tail Coverage?
Tail coverage, or an extended reporting period, is an option that extends the time during which a claim can be reported after the policy period ends. This is crucial for businesses that may face claims after they stop operating or switch insurers.
What If I Require Coverage for Claims Made After the Policy Period?
Tail coverage addresses this need by allowing claims to be reported after the policy has expired. For instance, if a business closes in 2024 but a claim is made in 2025 for an incident that occurred in 2023, tail coverage would ensure the claim is covered.
What are the Key Aspects of Claims-Made Coverage?
Pros:
- Often have lower premiums compared to occurrence-based policies.
- Allow for adjustments in coverage limits and terms at renewal.
Cons:
- Need for continuous coverage.
- Potential gaps if the policy lapses.
Example Scenarios
Consulting Firm: A consulting firm has a claims-made policy with a retroactive date of January 1, 2020. In 2024, a client files a lawsuit for advice given in 2021. The policy covers the claim because it was made during the policy period and the incident occurred after the retroactive date.
Medical Practice: A medical practice closes in 2024 and purchases tail coverage. In 2025, a patient files a malpractice claim for treatment received in 2023. The tail coverage ensures the claim is covered, even though the policy period has ended.
What Type of Insurance Programs Need Claims-Made or Occurrence Insurance?
Claims-Made Insurance
- Professional Liability Insurance (Errors & Omissions – E&O)
Ideal for professionals such as consultants, lawyers, accountants, and real estate agents. Ensures that claims made during the policy period are covered, even if the incident occurred years earlier.
- Directors and Officers (D&O) Insurance
Protects corporate directors and officers against claims related to decisions made by company leaders. Suitable because claims can be filed long after the decisions were made.
- Medical Malpractice Insurance
Ensures continuous protection for healthcare professionals and institutions, as claims can be filed years after the treatment was provided.
Occurrence Insurance
- General Liability Insurance
Covers incidents that happen during the policy period, regardless of when the claim is made. Beneficial for businesses that want long-term protection against incidents like slip-and-fall accidents.
- Umbrella Liability Insurance
Provides extra coverage over existing liability policies, typically on an occurrence basis to ensure broad protection.
- Product Liability Insurance
Covers claims related to product defects that cause injury or damage, with protection extending beyond the policy period for incidents that occurred while the policy was active.
By understanding these aspects and scenarios, brokers can better advise their clients on the suitability and management of claims-made insurance policies, ensuring they maintain continuous coverage and robust protection.
Ready to ensure your clients have the best coverage? Contact our team of underwriting experts today to get personalized advice and support!
* * Content is current as of the date of broadcast and is subject to change without notice.
* * Insurance coverage availability may differ between provinces.
* * Content is current as of the date of broadcast and is subject to change without notice.
