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Claims-made basis

A form of reinsurance under which the date of the claim report is deemed to be the date of the loss event. Claims reported during the term of the reinsurance agreement are therefore covered, regardless of when they occurred. A claims-made agreement is said to “cut off the tail” on liability business by not covering claims reported after the term of the reinsurance agreement—unless extended by special agreement.

Claims-made coverage

A type of public liability insurance that responds only to claims for injury or damage that are brought (to the insurer) during the policy period (or during a designated extended reporting period beyond expiration). This development was in response to long tail claims, such as those related to asbestosis injury, carrying over many years and multiple layers of coverage limits. However, most public liability policies are written on an occurrence basis, covering injury or damage occurring during the policy period even if a claim is brought months or even years later.

Claims-made policy

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).

Claims-made reinsurance

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.

Claims-paid policy

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.

Claims-related method

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.