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Claims made versus occurrence policy?

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Where a policy is written on a "claims-made" basis, this means that the policy in force at the time
a claim against you is made will pay for losses, regardless of when they occurred in the past.
(Assuming no retroactive inception date restriction).
With an "occurrence" based policy, even though the policy may have expired, provided the
policy was in force at the time that the bodily injury or property damage occurred, a claim can
still be made against it.
Both forms of coverage have advantages and drawbacks, depending on the circumstances. It is
difficult to predict whether, in any particular instance, it will be advantageous to insure using one
form or the other. Only in hindsight can a judgment be made.
Advantages of "occurrence" policies

 "Occurrence" policies are sometimes like "money in the bank," in that you can go back to
old policies, years after they have lapsed and put a claim against them for incidents that
happened while they were in force. Old policies should never be thrown away. They
should be kept in a place of safekeeping.
 You don't have to worry about canceling an "occurrence" policy and moving to a
different insurer. Coverage remains locked in for incidents occurring while the policy
was in force, so long as the insurer is in business. In contrast, once a "claims-made"
policy is cancelled, it is possible that purchasing insurance for past events will become
difficult, expensive or perhaps not possible.
 Sometimes courts will find occurrences in successive policies if there is continuing harm.
This can have the effect of accumulating limits over a period of years. With "claims-
made," only one limit applies; that in force when the claim is actually made.

Disadvantages of "occurrence" policies

 Insurance companies who wrote policies in previous years may no longer be around.
With "claims-made" policies, the insurer is much more likely to be around when a claim
becomes payable. The length of time between an occurrence and resolution in court can
be 20 or more years. An insurer in business 20 years ago may not be in business today.
The only way to mitigate this risk with "occurrence" insurers is to change to a different
one every few years so that you do not keep "all your eggs in one basket."
  The limits on an "occurrence" policy are likely to be inadequate if a claim is made twenty
years after a policy has expired. With "claims-made" it is easier to arrange a limit which
is adequate for today's exposures.

For malpractice exposures written on an "occurrence" basis it is important to arrange limits

which are somewhat more than is necessary in order to meet tomorrow's exposures. On a
"claims-made" basis, one does not need to project twenty years or more into the future when
setting limits; 7 years is usually the longest time it takes for a case to go through the court
system, so even though you still need to project into the future, the length of time is much less.
Advantages of "claims-made" policies

 Limits can be predicated on today's exposures more accurately than with "occurrence"
policies, so there is less likelihood of being underinsured.

There are advantages to some "claims-made" policies in addition to normal "claims-made"

advantages as follows:

 Previous inadequate "occurrence" basis limits can be topped up retroactively.

 Previous inadequate coverage or more restrictive terms exceptions and conditions can be
broadened out retroactively.
 The above two advantages can be made to apply whether the insured was previously on
either "occurrence" or "claims-made" policies.

Disadvantages of "claims-made" policies

 Coverage is triggered by an actual claim for damages, not a notice of an "occurrence" or

"incident." However, the date of the occurrence or incident must be more recent than the
retroactive date of the policy. This retroactive date determines the cut-off date for claims:
if the incident occurred before the retroactive date, the insurer has no obligation and the
insured no coverage. While the claim has to be made during the policy period, the
occurrence which gave rise to the claim has to fall after the retroactive date of the policy.
A "claims-made" policy wording covers as follows:

This insurance does not apply to "bodily injury" or "property damage" which occurred before
the retroactive date, if any, shown in the Declarations.
A "claims-made" policy can have:

 No retroactive date (the broadest coverage).

 A retroactive date that pre-dates the policy inception date (this may range from days to
years). Ideally, it should go back at least to the expiration date of your last "occurrence"
policy. If it goes back further it can be designed to provide top-up cover in the case of
different limits.
  A retroactive date that is the same as the policy inception date - this is the most limited
coverage and excludes any claim for damages that occurred prior to the policy inception.
It is acceptable only if prior to this policy "occurrence" coverage was in force or full
"tail" coverage has been purchased on any previous "claims-made" policy.

Ideally, you want no retroactive date or one that includes the entire period that you have had
"claims-made" coverage. Anything less makes you self-insured for any claims for injuries or
damage that occurred during prior claims-made policy periods which you have not reported to
your insurer at the time of the occurrence (unless such claims are covered by supplemental "tail"
coverage).

 The first claim for damages determines which policy applies. If a person first makes a
claim for medical payments in 1986, then files for additional damages in 1988, both
claims activate the 1986 claims-made policy.
 With "claims-made" basis of coverage, should the policy ever be allowed to lapse or be
cancelled, the insured is generally given the option of purchasing coverage, for a period
of limited to 36 months following expiry of the policy (extended reporting period). Any
"claims-made" during this 36 month period would then be covered. With "occurrence"
policies you don't have to worry about past incidents when lapsing coverage or changing
insurers.
 If coverage terms ever become more restrictive on subsequent renewal of a "claims-
made" policy, the new terms apply retroactively to the original retroactive or inception
date.

Occurrence policy key date is the date of the Occurrence or accident. If that date is during the effective
policy period, that policy applies. On claims made policies, the trigger date is the date the claim is made
or the policy holder becomes aware of a claim being made. If that date is during the effective policy
period, that policy applies. Generally claims made policies are found in professional liability policies
(doctors and lawyers) as well as errors and omissions policies.

Answer

Claims made policies have what's called a Retroactive Date - This is gennerally the effective date
of the first claims made policy writte. This date means that the insurance carrier WILL NOT pay
any claims that occur prior to that date. Furthermore, once the policy expires, any claims that
have not been reported during the policy term are not covered. You don't actually have any less
coverage, but you have less time to report a claim. There are endoresments you can buy to
extend the claim reporting time once the policy expires.

An occurrence policy will let you report a claim today on a policy that was in force 5 years ago.
You generally can't do that on a claims made policy unless you purchase endorsements.
The claims made policy is becoming popular for fighting construction defect claims where
builders are being sued today for something they did 7 years ago. If the contractor has a claims
made policy now, that policy will not respond to the claim.

The Difference Between Claims-Made and Occurrence Coverage

  Claims-Made Occurrence

Limits of Coverage will respond Coverage will respond

Coverage to incidents arising on to incidents arising
or after the policy from the coverage
retroactive date and period - regardless of
which are reported when those claims are
during the term of the reported.
policy.

Prior Acts-or Policy may be No Prior Acts coverage

Retroactive endorsed to respond is needed.
Coverage to incidents which
occurred before the
policy start date. also
referred to as policy
retroactive date.

Extended Tail coverage responds No Tail coverage is

Reporting to cover incidents that needed because
or have not been incidents that occurred
Tail reported to the during the policy
Coverage company during the period are covered no
policy term. Some matter how much later
companies will offer a they are reported.
free tail at retirement,
subject to certain
conditions.

Cost Claims made Occurrence coverage

coverage involves a tends to be very
step process with expensive because the
premium increases insured is prepaying
over the first five
for tail costs whether
years of coverage in
the tail gets used or
increments
proportional to the not.
claims reporting for
that experience. The
initial premium and
subsequent years'
premium are
substantially lower
than an occurrence
policy. By the fourth
or fifth year the
claims made
premium reaches a
mature level and
premium adjustments
are based on annual
rate changes only.