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Claims Made Insurance Policy

A policy designed to cover claims reported during a policy period only.

What is a ‘Claims Made’ insurance policy?

‘Claims Made’ insurance policies are a type of indemnity or liability insurance commonly used in Professional Indemnity, Management Liability, Cyber Liability, Asbestos Liability and others. These policies are designed to cover claims that arise from incidents that occur and are reported during a policy period.

They work differently from Occurrence-based policies, which cover claims based on when the incident occurred, regardless of when the claim is filed. Please keep in mind that insurer’s for both types of cover will have requirements around mandatory reporting of claims or incidents.

The coverage under a ‘Claims Made’ policy is triggered when a claim is made against the insured and reported to the insurance company during the policy period. Subject to the retroactive date, the insurer who is proving cover at the time the claim is made will respond to the loss.

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'Claims Made' vs 'Claims Occurrence'

Why policies are 'Claims Made'

What is 'Run Off' cover?

'Claims Made' FAQs

Types of insurance offered on a ‘Claims Made’ basis

Some of the insurance policies that are generally offered on a Claims Made basis include:

What is the difference between a ‘Claims Made’ insurance policy, and a ‘Claims Occurrence’ insurance policy?

The primary difference between Claims Made and Claims Occurrence insurance policies lies in when the insurance coverage applies to a claim, and what the coverage ‘trigger’ is.

Claims Occurrence Policy

  • Coverage Trigger: In a ‘Claims Occurrence’ policy, coverage is triggered by the occurrence of the event (the incident) happening during the policy period, regardless of when the claim is bought against you.

Claims Made Policy

  • Coverage Trigger: In a ‘Claims Made’ policy, coverage is triggered when the claim is made and reported to the insurance company, and must be during the policy period.

In summary, Claims Made policies provide coverage when a claim is made and reported during the policy period, while Claims Occurrence policies cover claims that arise from incidents occurring during the policy period, regardless of when the claim is made.

Why policies are offered on a ‘Claims Made’ basis

Insurance policies are typically offered on a Claims-Made basis rather than Claims Occurrence for several specific reasons that are closely tied to the nature of the risks and the unique characteristics of the professions or industries they cover.

The primary reasons that policies are typically offered on a Claims Made are:

1. Long-Tail Nature of Professional Risks: Professional liability claims often involve incidents or errors that may not be immediately apparent and can take a significant amount of time to surface. For example, a mistake made by a professional in their work might not lead to a claim until months or even years later when the consequences become evident.

2. Premium Structure: The premiums for Claims Made policies are usually based on the claims experience of a specific policy period, which can make the pricing more predictable for insurers, and more affordable for policyholders. This is in contrast to Occurrence-based policies, where the premium might need to account for potential claims that could be reported years or even decades in the future.

What is ‘Run Off’ cover, and do I need it?

‘Run Off’ Insurance, also known as ‘Tail Coverage’ or ‘Extended Reporting Period Coverage’, is a type of insurance that provides protection to professionals after they have ceased practicing or retired.

When professionals decide to stop their practice or cease operating, they may no longer need an active Professional Indemnity Insurance policy. However, they may still face the risk of liability claims arising from incidents or errors that occurred during their active practice period.

Placing a policy into ‘Run Off’ addresses this concern by extending the coverage for a specific period beyond the cessation of the business.

It is important to consider ‘Run Off’ Insurance for the following reasons:

1. Coverage for Past Work & Long-Tail Claims: When a professional stops practicing, there might be a gap in their liability coverage. Run Off Insurance ensures that claims arising from past work done during their active policy period are still covered, even if those claims are made after you have ceased operating. It is important to keep in mind that, Professional liability claims can take years to surface due to the nature of the services provided, so it is important to consider the potential risks of previous work performed to decide whether ‘Run Off’ Insurance is required.

2. Compliance with Contractual Obligations: Some professional contracts or agreements may require practitioners to maintain coverage for a certain period, even after the work is completed. Run Off Insurance helps fulfil these contractual obligations and avoids potential legal or financial consequences.

3. Peace of Mind: Ceasing practice or retiring can be a major life change for professionals. Having Run Off Insurance provides peace of mind, knowing that they are still protected against potential claims that may arise from past work, allowing them to retire or move on from their practice with reduced concerns about potential liabilities.

‘Claims Made’ Policy FAQs

1. How do I know whether my insurance policy is offered on a ‘Claims Made’ basis or not?

The simplest way to determine whether your insurance policy is offered on a ‘Claims Made’ basis or not is to check your policy documentation, including the Policy Wording & Policy Schedule. Look for any references to “Claims Made”, “Claims Made & Reported” or “Claims Made Basis”.

Claims Made policies will also have reference to a Retroactive Date.

Claims Made policies typically require claims to be reported to the Insurer during the policy period, or within a specific time frame after the policy expiration date. If your policy includes such reporting requirements, it is likely that it is a Claims Made policy.

If you are unsure, we would always recommend speaking with a qualified insurance professional or broker to confirm.

Understanding the basis of your insurance coverage is crucial for managing potential liabilities effectively and making informed decisions about your insurance needs.

2. What is a Retroactive Date on an insurance policy, and why is it important?

The retroactive date on an insurance policy is the earliest date from which the policy covers claims, and typically coincides with the start of your coverage or the inception of the policy when you first took out that type of insurance cover. In other words, it marks the earliest date back in time for which the policy provides coverage.

If you are ever changing policies or providers, always ensure that you check the Retroactive Date of your new policy to ensure that you are covered for past work, and that there is no cap in cover.

3. Can I switch insurers and maintain the same Retroactive Date?

Yes. In most cases, if you switch insurers, you can maintain the same Retroactive Date if you have held continuous coverage. However, it is essential to understand that the ability to retain the Retroactive Date may depend on the new insurer’s underwriting guidelines and the specific details of your insurance policy.

It is also common for the new insurer to request a copy of your current insurance policy to act as ‘proof’ of your current Retroactive Date, prior to agreeing to match this on the new policy.

IMPORTANT: If your new insurer does NOT match your retroactive date, you will NOT have cover for your previous work!

4. Can I report a claim that occurred before the retroactive date?

No. As the retroactive date on a policy is the earliest date from which the policy covers claims, any claim for work occurring prior to this date would not be covered by the insurance policy.

We would recommend discussing your individual situation and/or concerns with a qualified insurance professional or broker to better understand your options.

5. I have shut down or sold my business. What do I need to consider if I have an insurance policy that is offered on a ‘Claims Made’ basis?

If you have shut down or sold your business and you have an insurance policy offered on a ‘Claims Made’ basis, you should consider placing your existing insurance policy into ‘Run Off’ to ensure that you remain protected against potential claims arising from work that you undertook when you were operating.

Run Off Insurance is specifically designed to provide coverage for claims arising from past incidents after a business has ceased operations or the insured professional has retired.

We would recommend discussing your available options with your insurance provider or broker.

6. What options are available to me for placing my policy into ‘Run Off’ after I cease operating?

If you have ceased operating your business, you can speak with your insurance provider about placing your policy into ‘Run Off’ from the date of cessation, to provide protection for your previous liabilities and work undertaken.

The structure and pricing of Run Off Insurance will differ between each insurer, but generally you will have the option of taking up to 7 years’ of run off cover after you cease operating. This may be available to you under either of the following structures:

  • Set and Forget: ‘Set and Forget’ Run Off Insurance, also known as ‘Fixed Term Run Off Insurance,’ provides coverage for a specific, pre-determined period, typically with a one-time premium payment. You will be able to purchase multiple years of cover (generally 1-7 years) upfront, with no requirement to ‘renew’ the coverage.
  • Renewable: Renewable Run Off Insurance allows you to renew your Run Off coverage periodically, typically on an annual basis, just like a normal policy. At the end of each coverage period, the policy can be renewed for another term, subject to the insurer’s terms and conditions and payment of the renewal premium.

The choice between the two types of Run Off Insurance depends on your specific needs and circumstances, as well as cover availability and guidelines of the insurer in which your coverage is held with.

7. I am taking a temporary break from my business, but intend on operating again in future. Is it recommended that I place my cover into ‘Run Off’?

If you are planning to temporarily cease operations, but plan to resume operating at a later date, it is not generally beneficial to place your insurance policy into ‘Run Off’ for the interim period.

This is due to the fact that, once an insurance policy has been placed into ‘Run Off’, it is intended to protect previous work undertaken only, and is not intended to cover any new work undertaken after a prescribed and agreed upon date. It is generally not possible to take a policy out of Run Off once it has been placed, so if you were to recommence operating, you would not be insured for any new work carried out.

If you are temporarily ceasing operations, we would recommend speaking with a qualified insurance professional or broker to discuss the options available to you and your unique circumstances.

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