How Retroactive Coverage Can Help After A Loss

How Retroactive Coverage Can Help After A Loss

The International Risk Management Institute (IRMI) defines retroactive coverage as insurance that is purchased to cover a loss after it occurs. An example would be a company that was at one time self-insured. Retroactive insurance may cover incurred but not reported (IBNR) claims for a formerly self-insured business.1

Retroactive Coverage, Backdated Liability or LMU?

When creating a retroactive insurance policy, an underwriter will first estimate the liability for claim-generating events that have taken place but have not yet been reported to the insurer or self-insurer. Put simply, the sum of IBNR losses are added to incurred losses to produce the total eventual liabilities for losses during a given period.

Using this information, an actuarial team will work with underwriters to determine an appropriate premium for the retroactive insurance policy. Similar insurance products include:

  • Backdated liability insurance. IRMI defines this as “coverage procured for claims after a loss event has actually happened.” 2 Backdated liability insurance “is offered when the amount of the claim is very uncertain and potentially long delays in payment may result. The premium charged by the insurer, coupled with its investment value, is calculated to be sufficient to cover all the claims from the incident.” 3 This type of coverage is not commonly available.
  • Loss mitigation underwriting (LMU). Defined by IRMI as “the process of providing insurance coverage for existing litigation or for litigation that is imminent. Loss mitigation underwriting originated in the early 1980s when, after a massive fire suffered by the MGM Grand Hotel in Las Vegas, policy limits were insufficient to cover the huge losses sustained. In response, insurers offered a form of insurance designed to cover losses that had already occurred but whose magnitude had yet to be determined.” 4 Typically, IRMI notes that “loss mitigation underwriting provides policies containing fixed limits of liability. However, in some situations, insurers offer LMU coverage arrangements in which the insurer’s liability is unlimited.” 5

While retroactive insurance, backdated liability insurance and loss mitigation underwriting are not common in the Canadian marketplace, a few insurers will consider these products on a case-by-case basis. From coast-to-coast-to-coast, our insurance experts can help you navigate what options may be available to your business.

ALIGNED exclusively specializes in insurance for businesses. We do not offer personal lines insurance. We focus solely on providing the best expertise, products and service experience possible to your business. Our clients recognize that our exclusive focus on business insurance is just 1 of 18 points of differentiation that set us apart in the Canadian marketplace.

Ask an ALIGNED Insurance Advocate for more information about retroactive coverage, backdated insurance and loss mitigation underwriting. When a worst-case scenario happens, we’ll be here to help you get back to business.

Source: 1, 2, 3, 4, 5 IRMI

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