What is a significant feature of claims-made policies?

Claims-made policies are designed specifically to cover claims that are reported within the policy period. This means that for a claim to be covered, it must be both related to an incident that occurred during the time the policy is active and must be filed while the policy is still in effect. This feature is crucial because it defines the time frame in which claims must be reported for coverage to apply, creating a clear boundary for the insurer’s liability.

This structure contrasts with occurrence policies, which provide coverage for incidents that happen during the policy period, regardless of when the claim is made—potentially leading to coverage well after the policy has lapsed. Therefore, the focus on the timing of the claim reporting in claims-made policies is what distinguishes them and is a significant feature of their operation. This is beneficial for insurers as it helps manage risk and liabilities more predictively during the active years of a policy.

Claims-made policies may sometimes appear less expensive than occurrence policies due to this limitation in coverage, but pricing is influenced by various factors beyond just the coverage mechanism. Overall, the essential aspect of claims-made policies is that they only respond to claims reported while the policy is active, which fundamentally shapes how they operate in practice.