Claims Made V Occurence Based
Occurrence-Based Coverage:
Occurrence-based coverage provides insurance coverage for claims that arise from incidents that occurred during the policy period, regardless of when the claim is actually made. The key feature of occurrence-based coverage is that it responds to claims based on when the incident or negligent act took place, irrespective of when the claim is reported.
The type of cover that is chosen is often dictated by the previous insurance cover that was in place and/ or the type of coverage that is customary for the particular industry.
Advantages of Occurence Based
Long-Term Protection: Occurrence-based coverage provides long-term protection for incidents that occurred during the policy period, even if the policy is no longer active. Coverage Continuity: If you switch insurers or retire, the occurrence-based policy will still cover any claims made later for incidents that occurred during the policy period.
Disadvantages of Occurence Based: Higher Premiums: Occurrence-based coverage tends to have higher premiums since it provides coverage for a longer duration, potentially extending beyond the policy period. Potential for Coverage Gaps: If the policy is canceled or not renewed, there may be a gap in coverage for claims made after the policy period.
Claims-Made Based Coverage:
Claims-made based coverage provides insurance coverage for claims made and reported during the policy period. The policy must be active at the time the claim is made, regardless of when the incident or negligent act occurred.
Advantages of Claims Made: Lower Initial Premiums: Claims-made policies generally have lower initial premiums since they provide coverage only for claims made and reported within the policy period. Flexibility: Claims-made policies allow professionals to adjust their coverage limits and retroactive dates as their needs change.
Disadvantages of Claims Made: Limited Retroactive Coverage: Claims-made policies often have a retroactive date that specifies the earliest date of incident coverage. Claims arising from incidents that occurred before the retroactive date may not be covered. Tail / Run Off Coverage Costs: If a claims-made policy is canceled or not renewed, professionals may need to purchase tail coverage to protect against claims made after the policy's expiration.
In summary, occurrence-based coverage provides coverage for incidents that occurred during the policy period, regardless of when the claim is made, while claims-made based coverage provides coverage for claims made and reported during the policy period. Each option has its advantages and disadvantages, and professionals should carefully evaluate their needs and consult with an insurance professional to determine the most suitable coverage for their specific circumstances.
What if I move from occurrence based to claims made policy
When moving from an occurrence-based policy to a claims-made based policy, there is a potential gap in coverage that professionals should be aware of. This gap arises because claims-made policies only provide coverage for claims made and reported during the policy period, whereas occurrence-based policies cover incidents that occurred during the policy period, regardless of when the claim is made. Here are the key points to consider:
Retroactive Date: Claims-made policies often include a retroactive date, which is the date from which incidents are covered. Any claims arising from incidents that occurred before the retroactive date may not be covered under the new claims-made policy. This means that if you switch to a claims-made policy, any claims arising from past incidents might not be covered.
Prior Acts Coverage: To address the potential coverage gap, insurance providers offer an option called "prior acts coverage" or "retroactive coverage." This coverage extends the retroactive date of the new claims-made policy to match the start date of the previous occurrence-based policy. It effectively provides coverage for past incidents that occurred before the new policy's retroactive date. However, this coverage is typically subject to certain conditions and may come at an additional cost.
Tail or Run Off Cover: If you decide to switch from a claims-made policy to a different type of insurance or retire, you may need to purchase tail coverage. Tail coverage provides protection for claims made after the policy period ends but arising from incidents that occurred during the policy period. Tail coverage can be expensive, as it provides extended protection beyond the active policy period.
In summary, the potential gap in coverage or disadvantage of moving from an occurrence-based policy to a claims-made based policy lies in the fact that claims-made policies have a retroactive date and only cover claims made and reported during the policy period. It is crucial to consider the retroactive date, prior acts coverage options, and the need for tail coverage when transitioning between these policy types to ensure continuity of coverage for past incidents. Consulting with an insurance professional is essential to understand the specific terms and conditions and to determine the best approach to mitigate any potential coverage gaps.