Claims-made policy

Claims made policy is an Anglo-Saxon civil liability insurance system (covering, among others, the world's largest North American market) based very often on the last of the temporary stages of civil liability realization. In the case of a temporary extension of liability, the damage will be covered not by the insurer who was bound by the contract during the period of the harmful event, but by the insurer who was bound by the contract during the period in which the claims of the injured party were formally formulated.

Structure

Needless to say, this structure is very much in line with the reinsurance market, since the closure of the policy period generally prevents the lodging of claims (unless there is a contractual extension of this period). It is a fact that at present, as far as MTPL of managers and managers (D&O insurance) is concerned, it is not possible to obtain reinsurance cover on principles other than the claims made system. Insurers with weaker capital are forced to use a system acceptable to reinsurers.

The claims made in pure form allows for a claim to be filed in the policy period that arose in any distant past. In insurance practice, however, we are dealing with a modified claims made system, i.e. the insurer allows to report claims arising only a few years back (the so-called retroactive date), at the same time contractually and for an additional fee extending the period in which it is possible to report the claim (the so-called additional period for claims).

Discussion

The emergence of claims made insurance products in continental Europe has triggered discussions on the admissibility of the use of this construction in Germany or Italy. In particular, the relationship between the system of filing a claim to the statute of limitations for tort and insurance claims was considered. The application of the claims made system is associated with a significant difference in terms of the periods during which there is a possibility of an effective insurance claim and an effective tort claim. For example, in the claims made system, if the loss event had taken place during the policy period, and yet for some reason his occurrence would not have been reported, the civil liability insurance would no longer cover the losses incurred, as the insurer's liability would definitely end at the end of the policy period. Meanwhile, the civil liability in tort can be realized at least after 3 years.

Advantages of claims made policy

The advantages of claims made policy are as follows:

• unambiguity and certainty in determining the date of the insurer's liability (reporting the claim by the injured party),
• compensation determined and paid on the terms and conditions as of the date of claim submission (coincidence of the amount of the claim with the limit of liability in the policy),
• greater flexibility of the policy and its embedding in the current reality,
• short term insurer's liability, which translates into premium rate,
• the need to maintain insurance on claims made construction,
• activation of policies depending on the initiative of the injured party himself,
• no risk when switching from occurrence trigger construction to claims made construction.

Disadvantages of claims made policy

In addition to the obvious advantages of claims made policy, unfortunately, it also has drawbacks and its application entails some inconveniences.There are:

• doubts in determining the date of the insurer's liability (the event causing the loss),
• compensation determined and paid on the terms of the date of the event, and not the submission of the claim (possible lack of convergence of the amount of the claim with the limit of liability in the policy),
• less policy flexibility and lack of embedding in the current reality,
• remote liability of the insurer (need for insurers to maintain reserves).

Controversy

In claims made policy the temporal scope covers only the last stage of the development of the insurance accident, i.e. the filing of the claim. This is the youngest concept of an accident. The insurance company is developing the most intensively at the same time. Claims made is becoming popular in particular within the framework of professional liability in an era of intensive development voluntary insurance. This concept reflects the principle that liability insurance should protect before specific claims by persons not before the abstractly accounted for a responsibility that can materialize in the far understood the future. Consequently, claims made provides for the shortest liability in time the insurer. Not without they remain relevant in this context technical and insurance issues, emissions related to the need for construction a system of reserves by insurers for damage that will materialise at a distance the future.

Claims-made policy — recommended articles

Period of indemnity — First party insurance — Retroactive date — Limitation of liability — Indemnity principle — Hardship clause — Runoff Insurance — Dual insurance — Average clause

References

• Born P., Boyer M. M. (2011), Claims-Made and Reported Policies and Insurer Profitability in Medical Malpractice, Journal of Risk and Insurance
• Boyer M., Gobert K. (2011), Professional Liability Insurance Contracts: Claims Made Versus Occurrence Policies, Insurance and Risk Management
• Gold M., King S., Latham Ch.(2003), Liability coverage - whither claims-made?, Institute of Actuaries of Australia
• Doherty N. A., Singer H. J. (2003), The benefits of a secondary market for life insurance policies, Real Property, Probate and Trust Journal

Footnotes

Author: Nicoletta Krzewińska