Difference between an occurrence form and a claims-made form
The insurance industry is vast and complex, with various types of policies designed to cover different risks and exposures. Two commonly used insurance forms are the occurrence form and the claims-made form. Although they serve similar purposes, there are significant differences between them that can impact how coverage is provided and how claims are handled. Understanding these differences is crucial for policyholders and insurance professionals alike.
Occurrence Form
An occurrence form provides coverage for claims that arise from an event that occurred during the policy period, regardless of when the claim is made. This means that if an incident or event happens while the policy is in effect, the insurance company is responsible for covering any claims that arise from that event, even if the claim is made after the policy has expired. For example, if a policyholder purchases an occurrence-based general liability policy and an injury occurs on their property during the policy period, the insurance company is responsible for covering the claim, even if the claim is made several years later.
Claims-Made Form
In contrast, a claims-made form provides coverage for claims that are made during the policy period, but only if the incident or event that led to the claim occurred during the same period. This means that if a policyholder purchases a claims-made policy and an incident occurs during the policy period, the insurance company is responsible for covering any claims that are made during that same period. However, if the claim is made after the policy has expired, the insurance company may not be responsible for covering the claim, even if the incident occurred while the policy was in effect.
Key Differences
The main difference between occurrence and claims-made forms lies in the timing of when coverage is triggered. With an occurrence form, coverage is based on when the event occurs, while with a claims-made form, coverage is based on when the claim is made. This can have significant implications for policyholders and insurance companies.
Example
Imagine a policyholder who purchases a claims-made professional liability policy. If a client sues them for a mistake made several years ago, the policyholder may find that their insurance company is not obligated to cover the claim, as the incident occurred before the policy was in effect. However, if the policyholder had an occurrence-based policy, the insurance company would be responsible for covering the claim, as the incident occurred during the policy period.
Considerations for Policyholders
When selecting an insurance policy, policyholders should carefully consider the nature of their business and the risks they face. If their business is likely to experience long-term exposure to claims, such as in the medical or legal professions, an occurrence form may be more suitable. On the other hand, if their business is subject to sudden and unforeseen events, a claims-made form may be a better choice.
Conclusion
Understanding the difference between occurrence and claims-made forms is essential for making informed decisions about insurance coverage. By recognizing the timing differences in how coverage is triggered, policyholders can better protect themselves against potential financial losses and ensure that their insurance policies align with their business needs.
