Insurance policies are either written as an Occurrence Policy or Claims-Made Policy.
What is a Claims-Made Policy?
A claims-made policy is a type of insurance policy that provides coverage for claims made during the policy period but can cover an event that actually happened before the policy was in place. Basically, a claims-made policy allows an organization to insure itself on claims that may be filed based on something that happened in the past. Many claims-made policies incorporate a retroactive date. However, as long as the event occurred after the retroactive date and during the policy period, it would be covered. Similarly, a claims-made policy can have an extended reporting period, so if your policy expires in December, it could include a coverage period after that date.
What Is an Occurrence Policy?
An occurrence policy provides coverage for incidents that happen within the policy period. Claims that occurred during that coverage period, but that are filed after the policy in no longer in place, would still be covered by this type of policy. As a result, occurrence policies could potentially be more expensive, as claims could be filed for a longer period of time.
" A claims-made policy allows an organization to evaluate prior exposures and put a policy in place."
Why Claims-Made Policies are Used
A claims-made policy is effective for issues including wrongful termination, sexual harassment, and discrimination claims. Claimants may make claims against a policy long after a qualified incident takes place. This liability is referred to as employment practices liability.
A claims-made policy allows an organization to evaluate prior exposures and put a policy in place that can address claims that had not been filed from that period. Because the claims-made policy covers only claims reported within the policy period, the carrier has a more accurate picture of liabilities. This allows the carrier to reserve for potential negative development of known claims, but it does not have to reserve for new claims that would be reported after the policy expiration (like an occurrence policy would). Ultimately, this provides financial predictability for both the insured organization as well as the insurance carrier.
Connect with us to find out more about Claims-Made policies versus Occurrence Policies, and which ones address your liabilities in the most efficient manner.