Claims-Made Or Occurrence Coverage?
Three Key Differences Between Claims-Made Coverage and Occurrence Coverage
1) Claims-made insurance policies provide coverage for claims that are reported during the policy period. Occurrence insurance policies pay claims on potential incidents that occur during the policy period.
The policy period on a claims-made policy includes the current effective date and any prior acts that occur during the retroactive date named in the policy. On a claims-made policy, the policy that is in force at the time that the claim is “made” is the policy that responds to the claim.
A retroactive date is not necessary for an occurrence policy as coverage is for the acts that occur during the policy period, regardless of when the claim is made.
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2) Claims-made coverage is typically less expensive than occurrence coverage.
Because insurance companies are able to keep track of current claims activity/expenses/potential settlements/other costs, they can charge less for claims-made coverage. Insurance companies have a better handle on their actuarial data when the claims information can be seen in the current year.
In contrast, occurrence coverage requires that the policy that was in force at the time of the occurrence is the policy that responds to the claim. This could mean that a policy that was in force several years ago could have to respond.
A patient alleges that a surgery done in 2020 caused paralysis and files a claim against the physician on 2/1/21.
Let’s say the physician had the following claims-made policies
1/1/20 – 1/1/21 with a 1/1/20 retroactive date
1/1/21 – 1/1/22 with a 1/1/20 retroactive date
(note that you must keep the same retroactive date as the policies continue in order to have coverage back to that date under the most current policy)
The claim was made in 2021 when the current 1/1/21 -1/1/22 policy was in force with the 1/1/20 retroactive date, so the current 1/1/21 – 1/1/22 policy would respond.
Let’s suppose the physician had the following occurrence policies:
1/1/20 – 1/1/21
1/1/21 – 1/1/22
The occurrence happened in 2020, so the 1/1/20 – 1/1/21 policy would respond even though the claim was reported in 2021.
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3) Claims-made coverage requires tail coverage.
Tail (otherwise known as an Extended Reported Period) is required to allow continued reporting of claims after a claims-made policy is canceled. In the above example, if the claims-made policy was canceled on 1/1/21, tail coverage would be necessary to have coverage for claims that may not yet have been asserted. Imagine that in 2023, another patient alleges that a surgery that was performed in 2020 caused an injury. In this case, there would be no coverage unless tail coverage was purchased.
In summary, there are advantages to both policy types. When deciding which type is best for your practice, there are many things to consider, not the least of which is cost. Desert Mountain Insurance has over 20 years working with the healthcare industry. Call us and our professionals will review with you the pros and cons of each policy type so you can make an informed decision of what is right for your practice and your bottom line. For a free quote on your professional liability policy, please complete a questionnaire!