Claims Made vs Claims Occurring: What's the Difference?
Not all insurance policies respond to claims in the same way. One of the key distinctions is whether a policy operates on a claims made or claims occurring basis. The difference comes down to when the policy responds to the claim. The distinction is particularly important for some types of insurance because there may be a significant period of time between an incident occurring and a resulting claim being made.
What is a claims occuring policy?
A claims occurring policy generally responds based on when the incident that results in the claim occurred. Common examples of insurance that generally operate on a claims occurring basis include:
For example, if a customer is injured at a business's premises during the policy period, the Public Liability policy covering the business at the time of the incident would generally be the policy relevant to that claim, even if the customer does not make a claim until later.
If the business changes insurers after the incident occurs but before the customer makes a claim, the policy that was in place when the incident occurred would generally remain the policy relevant to the claim. The new policy would not generally respond simply because the claim was made while that policy was in place.
This can be important for liability risks where there may be a delay between an incident occurring and a claim being made. The policy period in which the incident occurred is the key consideration.
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What is a claims made policy?
A claims made policy generally responds based on when the claim is made, rather than simply when the underlying incident or circumstances occurred. Common examples of insurance that generally operate on a claims made basis include:
For example, a business may provide professional advice to a client in 2025, but the client may not allege that the advice caused them a financial loss until 2027. If the business has a claims made policy, such as Professional Indemnity insurance, in place when the claim is made, that policy may respond even though the advice was provided before the current policy period.
If the business changes insurers after the work was undertaken but before the claim is made, the new policy may be the one that responds, provided the circumstances fall within the policy's terms, including any applicable retroactive date and notification requirements. This is why maintaining continuous cover is particularly important for claims made policies.
This type of cover reflects the nature of risks where an error, omission or other circumstance may not become apparent until some time after the underlying work or event occurred.
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What are retroactive and run-off cover?
When considering a claims made policy, there are two important policy features to understand: retroactive cover and run-off cover. Both can affect the period of time a claims made policy may respond to, but they apply to different circumstances: work that took place before the current policy period, and claims that are made after the policy has ended.
The availability and terms of these features can vary between policies, so it is important to understand what your policy provides before changing or ending your cover.
Retroactive cover
Retroactive cover applies to work undertaken before the current policy period. A claims made policy may cover a claim made during the current policy period that covers earlier work, provided that work falls within the policy's retroactive cover. The retroactive date determines how far back this cover extends.
For example, a professional may have provided advice several years ago while insured with one insurer, then changed insurers before the client made a claim about that advice. If the claim is made under the new policy, whether the new policy provides cover can depend on its retroactive date and whether the earlier advice falls within the period covered.
Run-off cover
Run-off cover relates to claims made after a claims made policy has ended. It can provide cover for claims relating to work undertaken while the policy was in force. This can be particularly relevant when a business ceases trading, a professional retires or a business is sold.
For example, a nurse may retire and no longer require an active Professional Indemnity policy, but a patient may make a claim several years later about treatment provided while the nurse was practising. Run-off cover may provide protection for that claim, subject to the terms of the policy.
Both retroactive Cover and run-off cover are important considerations when arranging, changing or ending a claims made policy.
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Does one type of policy provide better protection?
Neither basis of cover is inherently better than the other. What matters is understanding how your policy responds and what happens to your cover if you change insurers, change your business circumstances or stop trading. For claims made policies in particular, understanding retroactive and run-off cover can be an important part of maintaining continuous protection.
How Coverforce can help
Changing insurers or reviewing your cover? Contact us today to discuss your policies and make sure you understand how your cover responds.
The information provided in this article is of a general nature only and has been prepared without taking into account your individual objectives, financial situation or needs. If you require advice that is tailored to your specific business or individual circumstances, please contact Coverforce directly.
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