In a nutshell, claims made policies cover incidents reported during a policy period, while occurrence policies provide coverage for events that occurred during the policy period, even after the policy expires.
“Claims made vs occurrence policies” – it’s a difficult choice. Both offer distinct benefits, but whether they are right for you will depend on your individual insurance needs and policy availability.
Below, we’ll explain each policy type for business insurance, and how each policy type may impact your organization.
Overview of Claims Made Policies
Under claims made policies, insurers will cover claims made and reported while the policy is active.
These policies were designed because of the nature of some forms of liability, which do not arise until many years after an event (for example, medical malpractice). Insurers found it challenging to accurately determine and price risk for these types of events, hence the creation of claims made policies.
For policyholders, maintaining an active policy is crucial. Claims filed after a policy is non-renewed won’t be covered, even if the incident occurred during the active period. Immediate reporting of claims within the policy period is vital to ensure coverage.
Overview of Occurrence Based Insurance Policies
Occurrence-based policies cover claims for events during the policy’s active period, regardless of when they’re reported. This often makes them more expensive to cover, and so premiums on these policies are usually higher.
For instance, if a hospital has an occurrence policy from 2004 to 2008, a claim in 2022 would be covered, but events before or after that period wouldn’t be covered.
Claims Made vs. Occurrence Policies: How to choose best option
Both policy types have their advantages and disadvantages, and the choice depends on a variety of factors.
Cost
Claims made policies tend to be less expensive since claims can only be made during a policy period.
But price isn’t everything. Some businesses find the risks associated with them outweigh the premium discount.
Long-term insurance strategy
Switching between occurrence policies is easy, but transitioning from claims made to occurrence can be complex due to claims from older years.
Retroactive dates and reporting periods influence switching between claims made policies.
The insurance required
Some insurers will only offer specific insurance types in one policy type or the other, limiting options. For example, commercial general liability insurance will usually only be offered as an occurrence policy.
Ease to manage
Occurrence policies are easy to manage. There is no need to keep them active and you will be covered for losses even after the policy expires. Claims made policies, however, need to constantly be renewed to keep you covered.
Selecting the best policy for your organization
Choosing the right policy depends on each company’s needs. While occurrence policies provide ease of use and long-term coverage, claims made policies can be more cost-effective.
Consulting an insurance brokerage is advised before making a final decision on the insurance policy, considering factors such as the size of your business, your available budget and what particular insurance you need.
Axxima are insurance specialists who can help you review the best insurance types and coverage, in order to make the right decision for your company. You can learn more about Axxima’s services here.
