When it comes to choosing between a claims made or an occurrence policy for your business, it is vital to understand the difference between the two. 

Generally, a claims made policy covers incidents reported during the period of its coverage. An occurrence policy provides lifetime cover for incidents (even after the policy expires).

When considering a business insurance policy, should you choose a ‘claims made’ or ‘occurrence’-based policy? Read on to find out which is best.

What is a Claims Made Policy?

“Claims made” policies only cover incidents that occur when that policy is active. For example, if an insurance policy covers incidents during the 2022-2023 financial year, only loss or damage that occurs within that period will be covered. Any incident that occurs outside that time period will not.

These policies were developed specifically due to the long-term and unpredictable nature of certain liability coverage, such as professional malpractice. These claims often arise decades after an event occurs, so it can be very difficult (if not, impossible) for an insurer to appropriately price a policy.

If a malpractice claim is filed in 2022 due to events that occurred in 2020, but the policy expires in 2021, the claim unfortunately will note be covered. It is therefore vital that claims discovered during a policy period are reported straight away – and definitely before the policy expires.

What is an Occurrence Policy?

“Occurrence” policies will cover claims that occur during the time the policy is active, regardless of when these claims are filed with an insurer.

For example, if a hospital has an “occurrence” insurance policy active from 2018-2020, it can file a claim in 2022 – as long as the claim arose during the time the occurrence policy was active. It will not cover incidents that occur before or after the policy was active.

As these policies permit claims that last for such long periods of time, they are normally more expensive.

Which type of insurance should you choose?

Both “claims made” and “occurrence” policies have their advantages and disadvantages. Which policy is best for your business depends on a number of factors. 

• Cost – “claims made” policies will usually be cheaper than occurrence-based policies. If you are on a budget, this is a good insurance policy to begin with.

• Ease of use – Occurrence policies are easier to manage because you do not have to worry about keeping the policy active (as you’ll be covered far into the future).

• Type of insurance required – Some companies may be restricted in the type of policy they can choose. Certain insurers will only issue some insurance types and not others. For instance, commercial general liability will often only be offered as an occurrence-based policy.

• Current insurance – What insurance policy you purchase might depend on the insurance you currently have. If you have a claims-made policy, for instance, it can be difficult to switch to an occurrence policy (simply because claims from older years will not be covered).

How to make the final policy decision

The type of insurance policy appropriate for you will differ depending on your business. Some may benefit from occurrence policies (especially professional services industries), but claims-made policies may also be the right solution for companies who are on a budget.

No matter the type of insurance you’re looking to buy, it is integral to discuss your options with a professional insurance actuary before you make the decision. That way, you can ensure your business is appropriately covered for the risks it faces.

The team at Axxima are here to assist you find the right insurance policy for your company, so please get in touch with them if you have any questions.