If you’re looking to take out an insurance policy, an important thing to be aware of is the difference between claims made vs occurrence policies.
Each policy serves specific insurance needs and comes with distinct advantages. Here’s a breakdown on the differences between the two.
Occurrence policies explained
An occurrence policy covers incidents that happen during the policy period, which is the usual approach for property insurance. However, with liability insurance it would mean coverage would respond regardless of when the claim is filed – even decades later.
For example, say a surgeon held an occurrence malpractice policy from 2010 to 2015. In 2023, a patient filed a lawsuit for complications from surgery performed in 2014. Despite Dr. Smith’s policy expiring in 2015, the occurrence policy would mean that it responds to the claim because the incident occurred during the active policy period.
This makes occurrence policies extremely difficult for liability insurers to price fairly, and also may result in an insurer attempting to collect from an insurer long after the policy term has expired.
Claims made policies explained
A claims made policy responds to claims reported while the policy is active, regardless of when the incident occurred – provided it happens after the retroactive date (if applicable).
This type of policy is the usual approach for liability insuracen, such as medical malpractice, where issues may surface years after the event.
However, coverage ends once the term of the policy expires unless you renew the policy or purchase run off coverage that allows claims to be reported after the policy expires.
Choosing the right policy
You’ll need to consider a number of factors when determining what is the right policy for your business.
- Future plans: Businesses with claims made policies may find switching insurers challenging, risking gaps in coverage. Occurrence policies provide seamless transitions without lapses.
- Ease of use: Occurrence policies are generally easier to manage since they provide coverage for incidents that occur during the policy period, regardless of when the claim is filed. This eliminates the need for ongoing policy maintenance or concerns about coverage gaps, offering long-term peace of mind for businesses.
How will you make the right choice?
The choice depends on your business’s needs, budget, and risk tolerance.
While occurrence policies offer peace of mind with long-term coverage, claims made policies provide affordability and flexibility.
Consult with an insurance broker to determine the best fit for your company’s unique requirements.
If you’re looking for an experienced insurance broker to help you understand what policy is right for you, then contact Axxima for expert guidance on selecting the right policy to protect your business.
