- Occurrence Coverage vs. Claims Made Coverage
Yankees or the Red Sox, Ruth or Bonds, it all depends on your taste and preferences. A sea of ink has been expended in this debate over which policy form is better. Yet, while the policy form is an important consideration, it can’t be separated from the context of the insurance contract.
An occurrence policy with poor coverage features is not going to compare favorably to a claims-made policy with an unlimited tail and strong coverage features. The value of the policy form is going to depend on the coverage it buys. Don’t separate the two.
Pointer #1: Don’t use the policy form as a litmus test for shopping the market.
Health care professionals have a choice between claims-made or occurrence forms in the current marketplace. However, not every malpractice program advertised by occurrence is really a true occurrence form. Believe it or not, there are impostors out there!
A pure occurrence product means that you are insured for covered actions during that policy period forever. You buy it once, you are covered forever.
A claims-made policy may work just like an occurrence policy. You are insured for covered actions during the policy period forever if you buy or are given the “unlimited tail” at the end of the policy period. Some carriers offer a claims made policy with a pre-paid “unlimited tail,” meaning that the cost of the “tail” is included in your annual premium. There is no “tail” to purchase at the end of the policy because you have been pre-paying it all along.
But is a claims-made policy with “unlimited tail”, pre-paid or otherwise, exactly like an occurrence policy?
Say you have a $1 million occurrence policy which you renewed each year for ten years. You would have $1 million coverage for each and every one of those ten years. Compare it to a $1 million claims-made policy with the unlimited (either paid at the end of the policy period or pre-funded) which you renewed for ten years. You would have $1 million in total covering the entire ten-year period. Personally, I think a $1 million of liability coverage for a ten-year period is perfectly adequate. I have no problem with claims-made products with unlimited tails, pre-funded or otherwise.
Pointer #2: Look at the specimen policy. If it is claims made, it has to be clearly labeled — “This is a claims-made policy.” A claims-made policy with a pre-paid tail IS NOT an occurrence policy.
You should also be aware that a claims-made policy with a pre-paid tail generally does not provide “free” tail coverage in the event of death, disability or permanent retirement.
Pointer #3: If you are approaching retirement, a claims-made policy with a “no cost” tail upon retirement may be a better bargain than a claims-made policy with a prepaid tail.
Finally, pre-paying a “tail” may not be in your best interest.
Depending on the circumstances, you may never need to buy a “tail” for your professional liability policy. Your state insurance department requires that “tails” are offered with claims-made policies, so your right to buy a “tail” is not going to disappear.
Why pay the higher premium rates for a claims-made policy with pre-paid “tail” unless you are certain that you will have to buy the tail.
Pointer #4: Pre-paying a “tail” when both “noses” and “free tails” are available in the marketplace may not be in your best interest.
In general, a pure occurrence product should cost more than a claims-made product.It should cost more because you are buying more liability coverage. If you see an occurrence rate that seems too good to be true — it’s probably the case.
First, check to see if the policy really is occurrence rather than claims-made with a pre-paid tail. Then, check what the policy covers and what it excludes. What looks like a bargain may quickly lose its luster when you read the fine print. Pure occurrence products are available, but the real thing doesn’t come at bargain basement prices.
The real competition among insurance carriers has been in the claims-made arena. There has been some serious rate and coverage competition in progress during the 1990′s. Nearly all the exciting new features such as severability of limits, licensing board coverage, and premium discounts/credits generally are available on the claims-made rather than occurrence products.
The availability of unlimited tails makes a claims-made an attractive insurance option for doctors; in fact over 85% of all doctors are insured under this policy form.
Plus, claims-made premium rates should offer some real premium savings over a comparable occurrence product.
Remember, contrary to popular belief, doctors aren’t sued very often, and when sued, the vast majority claims cost well under $100,000. Few doctors are sued more than once in their lifetime, OB’s to the contrary. Given these trends, stretching your liability limits over a number of years with a claims-made program is not particularly risky.
Occurrence versus Claims-made — that’s your choice. Either form can be the perfect fit for you depending on the actual coverage it provides you.
- What You Need to Know About Prior Acts Coverage
Most insurance companies offering claims-made policies also offer “prior acts” coverage when you purchase malpractice insurance for the first time.
Here’s an example:
An OBGYN is in her third year of claims coverage and elects to switch her malpractice insurer and the new insurance company offers prior acts coverage.
What happens is the OBGYN receives a retroactive date matching the original inception date of the malpractice insurance policy date of coverage with the expiring insurer.
In return the OBGYN pays the new medical malpractice insurer for the third year claims made rate. Now, no tail coverage is needed at time.