How does a claims-made insurance policy work?
Triggered by a claim. This is essentially how the IRMI – the International Risk Management Institute – defines claims-made policies in its glossary of insurance terms. This is also a type of coverage we’re being asked about. Claims-made policies may be an opportunity for your Canadian business. Here’s the institute’s definition in it’s entirety:
“A policy providing coverage that is triggered when a claim is made against the insured during the policy period, regardless of when the wrongful act that gave rise to the claim took place. (The one exception is when a retroactive date is applicable to a claims-made policy. In such instances, the wrongful act that gave rise to the claim must have taken place on or after the retroactive date.)
Most professional, errors and omissions (E&O), directors and officers (D&O), and employment practices liability insurance (EPLI) is written as claims-made policies.”IRMI.com – Claims-Made Policy
Firstly, how does an occurrence policy work?
To start with, claims-made insurance is one of the two categories that all property and casualty (P&C) policies fall into. The coverage your business selects helps determine:
- How much your premiums cost. Initially and during future renewals.
- In the event of a claim, what your business responsibilities will be.
The majority of Canadian P&C insurance policies are occurrence policies. These policies tend to be less complicated. An occurrence policy covers any instance of bodily injury or property damage that happens within your policy period, regardless of the date the claim is submitted.
With an occurrence policy you could potentially submit a claim years after your policy period ends. So long as the event that triggers the claim occurred during your period of coverage, you could submit it. The period of time you are insured is “forever” protected by the occurrence policy that covered that year.
When your policy period ends, there is no need to renew the policy or purchase “tail coverage” to cover events from your policy period.
As a business owner, if you face the risk of unknown or unreported claims arising long after your policy period is over, an occurrence policy might be right for you.
Secondly, how does claims-made insurance work in Canada?
A claims-made policy tends to be more complex. Factors such as “tail coverage” and retroactive dates come into play. Claims-made policies only cover claims made during your policy period; it is unnecessary to determine when the bodily injury or property damage occurred.
What’s advantageous is that your claims today are covered by the policy you have today. This gives you the benefit of purchasing policy limits that correspond with your current economic and legal environment.
However, if you or the insurer cancels or does not renew the claims-made policy, you will have no coverage for claims made after the cancellation or non-renewal date for injuries or damage that occurred prior to that date.
Claims-made versus per occurrence? Ask us to assess your business risks. We can help you assess the options, value and fit to get your specific risk exposures optimally aligned.