Claims Occurring vs Claims Made: What’s The Difference?
Insurance policies can be structured to respond to claims in two different ways: on a claims occurring basis, or a claims made basis. This is a feature that is generally seen in liability policies – for instance professional indemnity insurance, or directors and officers liability insurance (D&O liability insurance).
What is a Claims Occurring insurance policy:
A claims occurring policy will cover claims that occurred during your policy period, regardless of when the claim is actually made to the insurer. This means that you can switch insurers, file a claim with your new insurer, and you’ll still be covered even though the claim had occurred while you were insured with your previous insurer.
What is a Claims Made insurance policy:
A claims made policy will cover claims that happen while your current policy is active. It will cover claims that occurred in the past, but only if you held uninterrupted coverage from the time of the claim in question.
If you switch insurers, you may (or may not) be able to get coverage for claims that stem from incidents while you were with your old insurer. Some insurers will offer retroactive cover if you’re switching from another insurer, while others will not. Speak to your broker if you need clarity on this.
Examples on claims occurring vs claims made policies:
The above descriptions can be a little confusing if you’re new to insurance. So let’s look at some examples to make things a little clearer!
Claims Occurring: You started a construction company 5 years ago. You had a commercial general liability (CGL) insurance policy that expired last year. You haven’t renewed since then.
For your very first project in year 1, you built a house for a client. However, some cracks and leaks have recently occurred now that the building is 5 years old. The client is now blaming you for allegedly providing shoddy work, causing this damage to their building. Because this claim occurred in year 5 you’ll still be covered even though your policy has lapsed. See where the term “claims occurring comes from?”
Claims Made – Situation 1: You started a construction company 5 years ago. From Day 1 of operations, you bought a Professional Indemnity Insurance policy, written on a claims made basis. You have renewed this policy every year without fail, therefore maintaining uninterrupted coverage.
For your very first project in year 1, you built a house for a client. However, some cracks and leaks have recently occurred now that the building is 4 years old. The client is now blaming you for allegedly providing shoddy work, causing this damage to their building.
Because you have maintained uninterrupted coverage since you took on this project, you’ll be covered for any claims, even though the incident stems from work you did 5 years ago!
Note: The first date from which you’ve held uninterrupted coverage is called the retroactive date. It’s a technical sounding term, but as you can see from the example above, has significant implications on your coverage. Read this guide on retroactive dates for more clarity.
Claims Made – Situation 2: Let’s keep the story the same as above. However, this time, you only bought a Professional Indemnity Insurance policy in year 4 of operations.
Are you still covered if you have a policy? The answer is, unfortunately, no. That’s because a claims made policy only covers claims made while the policy is active. You didn’t hold an active policy while doing this first project in year 1, remember? You only bought the policy in year 4, so the insurer won’t cover this claim.
What kinds of insurance policies are claims occurring vs claims made?
Claims Occurring Insurance Policies:
- Commercial general liability (CGL) insurance: This is usually written on a claims occurring basis. CGL policies are broadly-written policies that protect companies against liability for causing personal injury, property damage, and providing wrongful advice. As part of this comprehensive coverage, CGL policies are usually also written on a claims occurring basis, so clients have additional protection. Of course, such protection comes at a higher cost than other policies that are written on a claims made basis.
Claims Made Insurance Policies:
- Professional indemnity insurance: This is usually written on a claims-made basis. Because of the significant exposure that insurers have when insuring professionals, insurance companies will tend to limit their exposure by structuring professional indemnity policies on a claims-made basis.
- Directors and officers liability insurance (D&O liability insurance): This is usually written on a claims-made basis. When companies get sued, the company’s directors and officers will often get sued also.
Claims occurring vs claims made policies: which one should I get?
This depends on your needs, but the vast majority of SMEs will typically get claims made policies. This is because claims made policies already offer excellent protection against claims, and also happen to be much more affordable. The main thing that policy holders need to take note of is to hold uninterrupted coverage, so that any claims from past work will be covered.
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