Insurance policies can be written on two bases: Claims made, or claims occurring. It is important to understand the terms of your policy, as this may determine whether you get a payout should you ever need to make a claim.
In this post we will explain the key differences between a claims made and a claims occurrence policy, and examine why this distinction matters.
What is a Claims Made Policy?
An insurance policy will usually specify the policy period, which is typically 12 months. In a claims made policy, the insurer will pay out for any valid claim made during this policy period regardless of when the insured incident occurred.
Claims Made Policy Examples
A professional indemnity insurance policy, for example, may specify a retroactive date, which could be a number of years before the date you originally took out the policy. If it is a claims made policy, then it would cover all of your work as far back as this retroactive date.
A claims made policy may also pay out for a claim made after the policy period expires. However, for this claim to be successful, the policyholder would have to notify the insurer of emerging circumstances during the policy period.
For example, the policyholder may become aware that a client is dissatisfied. This client may not make a claim immediately, but it seems likely that they will in the coming months or years. If the policyholder notifies their insurer of this situation, then the insurer may honour the claim even if it is made after the policy period expires, and even if the policyholder switches insurers.
What is a Claims Occurring Policy?
A claims occurring policy will only pay out for claims for incidents that occurred during the policy period. This can include claims for losses or damages that occurred during the policy period, but which did not emerge until after the period expired.
Claims Occuring Policy Examples
Employer’s liability insurance policies are typically written on a claims occurring basis. This means that employees can make a claim for injuries or illnesses that only become apparent after they leave the job.
For instance, an employee who is exposed to asbestos or other harmful substances may not become aware of any health issues until years later. Plus, employees may develop RSI or other conditions as a result of using certain equipment over a number of years. In both cases, if the employer’s liability insurance policy is written on a claims occurring basis, then these employees would still be able to pursue their former employers for compensation.
What’s the Difference between Claims Made and Claims Occuring Policies?
The key difference is relating to when the incident occurred. Policies written on a basis of claims made will cover claims made within the policy period regardless of when the incident occurred, whereas a claims occurring policy will only cover claims for incidents that occurred during the policy period.
Do You Have a Claims Made or Claims Occuring Policy?
So, is your business insurance written on a claims made or a claims occurring basis? It should now be clear that this could determine whether or not you are able to make a successful claim on your policy, so you should check your policy wording to find out.
If you are taking out a professional indemnity insurance policy to cover an ongoing project, then a claims made policy is most likely to give you the cover you need for as long as you need it. Agree on a valid retroactive date, and notify your insurer of any emerging threats, and your policy should give you full protection even for incidents occurring years before, or years after, the policy period.
Be sure to read our full guide to getting the right level of professional indemnity insurance here.
Understanding Your Policy Terms is Key To Avoiding Underinsurance
If you do not understand the terms of your policy, then you might find that you do not have all the cover you need should you ever make a claim.
James Hallam is an independent Lloyd’s broker with a dedicated team of experienced insurance professionals who care about protecting your business. We can help you understand your cover requirements, before helping you ensure your policy meets all of your needs at the best price.
Learn more about our professional risks insurance services.
