The Difference Between a Claims-Made Policy and an Occurrence Policy in Liability Insurance

In the past, insurance policies such as public liability and professional indemnity insurance were written on an occurrence basis, with insurance companies relying upon timely filing and the statute of limitations to cap their liabilities. What this meant was the insurer would cover a business for negligent acts that occurred (or was filed) during the policy period. However, the face of the liability insurance industry changed when a large number of claims for personal injuries arose during the 70s and 80s. These claims resulted from chemical exposures that had taken place 20 and 30 years before the insurance company even came onto the policy. The difficulties in dealing with these long-tail claims has led to both higher premiums and an increased move by the insurance industry to claims-made policies.

Claims-Made Policies: What They Mean for You

Under a claims-made policy, the insurance company is able to cap its long-term liabilities and stay profitable. The good news is that this type of policy is much more affordable than an occurrence policy. However, the insured must pay close attention to the terms and conditions of issuance in order not to negate the coverage. Some insurance companies require notification of even potential claims. Claims reporting can be somewhat of a balancing act for companies, caught between absolute compliance with claims reporting requirements and a desire not to present as a poor risk.

Mitigating the Risk

Accepting some of the risk in-house, by having a self-insured retention, can take care of some of the smaller claims that come along. Improving your risk assessment profile by addressing internal weaknesses will also help in the claim avoidance and yield lower premiums. Finding a good insurance company, with the help of a licensed insurance agent who specializes in public liability and professional indemnity insurance, will also help. With attention to risk assessment and self-insuring part of the risk, you should find your business well-protected, while getting the best premium.

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