A liability policy covering all claims first notified during the policy year or any applicable extended reporting period regardless of when the injury or loss occurred. However, if the policy has a retroactive date the policy will not respond to events occurring before that date. Unlike the lossesoccurring policies, the policy ‘runs off’ at the end of the extended reporting period. See CLAIMS-MADE REINSURANCE; LIABILITY SEQUENCE.
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Often a form of general or professional liability, there are two basic types of claims-made policy forms:Claims-Made and Reported FormLosses under this form are covered only if the incidence giving rise to the claim takes place and is reported during the policy period. If a claims-made policy is not renewed, an optional Extended Reporting Period (ERP) also known as a “tail” may be purchased. For a claim to be covered, it must occur and be reported either during the policy period or during the Extended Reporting Period.
Pure Claims-Made Form
Just as in the “claims-made and reported form” the claim must take place during the policy period or the extended reporting period. However, the reporting of the claim to the insurance company must be made “promptly” or “as soon as practical.” The key is to know what “triggers” a claim.
For example, suppose an employer receives a notice from the EEOC regarding an administrative hearing concerning employee discrimination and does not report it to the insurance company because there is no actual claim for damages or litigation. The employer has insurance coverage on a claims-made basis with a 60day ERP. Seventy-five days after the expiration of the policy the employer is sued for discrimination. There is no coverage under either a claims-made and extended reporting form or a pure claims-made form. The incident that “triggered” the claim took place when the notice was received from the EEOC had to be reported before the end of the 60-day ERP. (See Nose; Tail).
An excess of loss reinsurance contract under which the reinsurer pays losses if the claim is made during the policy period in respect of occurrences after the retroactive date. It overcomes the difficulty associated with long tail cases of having to ascertain the time of the occurrence. The treaty usually incorporates an extended reporting period and incorporates the claims-made trigger of the underlying liability policy. Compare with LOSSES-OCCURRING REINSURANCE and see RISKS ATTACHING.
A liability insurance policy that is triggered at the time a claim is paid, rather than at the time a claim is first reported (claims-made policy) or at the time the injury or damage occurs (occurrence policy). This approach can offer significant benefits in terms of pricing accuracy. However, since claims will be paid only while the policy remains active, the insured facing a claim cannot cancel the policy while the claim is pending, often for years, unless he or she is willing to pay the claim out of personal assets.
A method of dividing the cost of insurance purchased for the organisation and apportioning it among the cost centres based on claims experience. The aim is to ensure that each part of the company contributes to total insurance costs in a manner reflecting its own claims record. It encourages loss prevention.
A type of foundation that provides peer review by physicians to the numerous fiscal agents or carriers involved in its area.
In all correspondence with the insured relating to a claim, the Insurers incorporate the words” Without Prejudice” on the top. The effect of these words is that whatever action the insures may take in the processing of the claim, they reserve their right to deny liability ultimately if they are legally entitled to do so.
Major repairs to a goods vehicle, for example involves a large outlay and the insured may not be able to spend such large amounts initially and then claim reimbursement from the Insurers after the repairs are carried out. In such cases Insurers offer to pay a sum which is lower than the amount of repairs recommended by the surveyors, say, by 25% to 30% without insisting on repairs being carried out. These settlements are also effected when, in the case of a total loss, the salvage is not easily disposable or the salvage value realizable is not reasonable. A mutually agreed salvage value is deducted from the total loss amount recommended by the Surveyor and the net amounts paid, the insured being allowed to retain the salvage.Claims, Cash Payment : When the Insurers are satisfied in regard to the cause and extent of loss, as ascertained from the claim form and other inquiries and also, in large losses, report from independent surveyors, the loss is settled by cash payment. This is the most common method of claims settlement.Claims, Reinstatement : This method would apply in respect of buildings or other property destroyed or damaged by Fire. This method is rarely used by the Insurers, because once this method is chosen by Insurers, they cannot subsequently withdraw and offer cash settlement. Under this method, the responsibility for the way in which reinstatement is carried out will be of the Insurers. Generally, Insurers would resort to this method only when the insured claims an amount far in excess of the cost of reinstatement.Claims, Repair : Instead of making a cash payment, the settlements of claims may be effected by repair. This is the practice followed for motor damage claims. The procedure is for the insured to submit a detailed estimate of the cost of repairs to the Insurers who will arrange an inspection of the damaged vehicle to see that the repairs are necessary and the cost reasonable. Thereafter, the Insurers will authorize the repair of the vehicle. On receipt of the final bill of repairs and a satisfaction note from the insured, the repairer is paid.Claims, Replacement : he Insurers may Directly arrange with a dealer to replace the property (e.g., jewellery) lost or damaged. This method is commonly employed under plate glass Insurance.Claims, Theft Claims, Vehicles : If the vehicle is stolen and not traced by the police, say, even after 4 to 5 months, the loss is considered on a total loss basis.Claims, Total Loss, Accidental Damage, Motor : If, in the opinion of the Surveyor, a vehicle is not repairable or the repairs are not economical, the loss is settled on a total loss basis. The amount payable is the actual market value of the vehicle immediately prior to the loss or the insured value of the vehicle, whichever is the less. The salvage that is, whatever remains of the damaged vehicle, is taken over by the Insurers and disposed of for their own benefit.Claims Notified/Reported : Claims that have been incurred and which have been notified or reported to the insurer. It is often used in relation to those claims reported during the accounting period.
There are several methods of providing indemnity to the insured. These are:
A casualty excess of loss reinsurance agreement with a retention level equal to or higher than the maximum limits written under any one reinsured policy or contract reinsured under the reinsurance agreement. Usually applicable to casualty lines of business, the clash cover is intended to protect the ceding company against accumulations of loss arising from multiple insureds and/or multiple lines of business for one insured involved in one loss occurrence. Clash cover may also be provided for single policy exposure based on ECO/XPL and run away defense costs. Sometimes referred to as Unknown Accumulation Cover.
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A type of catastrophe reinsurance for casualty insurance. The retention is equal to the highest limit of any one insurance policy covered by the agreement. Clash cover is written to cover all losses from one source, such as a construction site. More than one insured may be involved in the same occurrence, known as a clash.
An excess of loss treaty with a retention higher than the limits on any one reinsured policy or contract. The agreement covers the reinsured’s exposure to multiple retentions when two or more policies (perhaps from different lines of business) are involved in the same occurrence in an amount that exceeds the clash cover retention.