What is the difference between occurrence and claims made insurance

As a professional medical practitioner, expertise has to be developed in many areas to effectively provide care within your field. You’ve earned your degree after years of study; you concentrate on providing the best care to your patients, in addition to winding your way through all of the other areas of your life. And then you get to the professional liability insurance end of things and you’ve hit a wall. Claims made? Occurrence? What? Which one is right for me?

 Insurance 101, the lesson on occurrence versus claims made:

An occurrence policy provides coverage for “alleged incidents” (injuries) that happened during the policy year regardless of when the claim is reported to the carrier. It provides a separate coverage limit for each year the policy is in force. It doesn’t matter if the policy is active when the claim is reported. It only matters that the policy was active when the alleged incident occurred.

Conversely, a claims-made policy covers the insured for an incident that occurred during the policy period and was reported as a claim while the policy remained in force.

At CPH and Associates, we believe the occurrence policy’s lifetime coverage provides better coverage for practitioners.

3 Differences between claims made & occurrence based coverage

Claims Made Insurance Policy:

• Covers only claims that occur and are reported while the policy is in effect
• The premium generally increases for about five years until policy is “mature”
• Requires a “Tail” to provide coverage if a claim is reported after the expiration date

Occurrence Insurance Policy:

• Lifetime coverage for the policy period, regardless of when a claim is reported
• No increase in premium unless there is a change in occupation or rating category
• No “Tail” necessary as policy provides lifetime coverage

Tail coverage is required by claims-made professional liability insurance, especially if:

• The claim occurred while the practitioner was practicing on behalf of the practice
• The practitioner was notified that the claim was pending while the practitioner was engaged in that practice.

Tail coverage will be necessary if you leave the practice and acquire a new insurance carrier in your new place of employment.

Understanding the claims made and occurrence policies and major their differences will help you navigate the choice of which is best for your professional needs.

Claims-Made Insurance vs. Per Occurrence Insurance

Claims-Made Insurance vs. Per Occurrence Insurance is an important distinction.  All property and casualty (P&C) insurance policies fall into two categories:  claims-made and occurrence policies.

Whether your coverage is claims-made insurance vs. per occurrence insurance determines:

• Whether or not your policy will respond to a claim
• What your company’s responsibilities will be in the event of a claim
• How much your premiums will cost, both now and in future renewal periods

Understanding the basic differences between claims-made insurance vs. per occurrence insurance will ensure you have the coverage you need.

Occurrence Insurance Policy

The majority of P&C insurance policies are occurrence policies, which tend to be the less complicated of the two types of coverage. An occurrence policy covers any instance of bodily injury or property damage that happens within your policy period, regardless of the date you submit the claim. This means you could potentially submit a claim years after your policy period ended, as long as the event that triggers the claim occurred during your period of coverage.

One advantage of having this type of policy is that the period of time you are insured is protected “forever” by the occurrence policy you had that year. When your policy period has ended, there is no need to renew the policy or purchase “tail coverage” (explained later in this article) to cover events from your policy period.  As a business owner, if you face the risk of unknown or unreported claims arising long after your policy period is over, an occurrence policy might be right for you.

“Manifest” versus “Exposure.” An interesting provision to look for in occurrence policies, as it pertains to bodily injury claims, is the concept of “manifest” versus “exposure.” There is a growing realization and understanding of the dangerous effects of long-term exposure to toxins, such as asbestos, cadmium, crystalline silica and more. Regarding an occurrence policy, the question is whether a bodily injury occurred when the injury “manifested” itself or occurred when the injured party was first “exposed” to the toxin. How an insurer defines occurrence may differ from carrier to carrier, so make sure to discuss this with an ALIGNED Insurance Advocate.

Claims-Made Insurance Policy

Claims-made policies tend to be more complex than occurrence policies because factors such as “tail coverage” and retroactive dates come into play. Claims made policies only cover claims made during your policy period; it’s unnecessary to determine when the bodily injury or property damage occurred.

What’s advantageous about this type of policy is that your claims today are covered by the policy you have today. This gives you the benefit of purchasing policy limits that correspond with the current economic and legal environment in which your business operates.

The disadvantage of a claims-made policy is that if you or the insurer cancels or does not renew the policy, you will have no coverage for claims made after the cancellation or non-renewal date for injuries or damage that occurred prior to that date. This is where purchasing the “tail coverage” would be necessary.

What is a Tail? A “tail,” also known as an extended reporting period (ERP), is coverage you can purchase to cover claims after your policy expires. Tail coverage is purchased to go along with a claims-made policy; with occurrence policies, an ERP is already built-in.

With tail coverage, you can report claims for incidents that occurred during the period you had your claims-made policy, but the key is that you are able to report the claims after your policy expires.

Which Policy is Right for You: Claims Made or Occurrence?

To determine if an occurrence or claims-made policy is right for your business, consider:

• Premium cost. Typically for the first five years of coverage, claims made policies tend to be less expensive than occurrence policies. But keep in mind that as your business faces more exposures, your premiums will increase; usually, after five years, the cost of a claims-made policy begins to even out with occurrence policies.
• The amount of coverage. A claims-made policy covers your claims at your current coverage level; whereas, an occurrence policy covers you at the amount of coverage you had during your policy year. If your occurrence policy period was years ago, your coverage level can be quite a bit less than today’s coverage level, due to inflation and the rising cost of claims.
• The type of business. When determining what policy you need, consider your line of work. Do you anticipate future claims arising out of the current business transactions you have with your customers? If so, then an occurrence policy might be best for you.

ALIGNED Across Canada   

100% Canadian owned, ALIGNED is a premiere insurance brokerage that serves more than 1,400 clients across the country. ALIGNED’s offices in Toronto, Calgary and Vancouver are supported by a national operations centre in Cambridge, Ontario. Uniquely within the industry, ALIGNED creates, negotiates and delivers the best business insurance and risk management strategies/solutions to organizations like yours.

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