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Claims Made FormEdit

Claims-made form is a category of liability insurance policy that defines coverage by the time a claim is made against the insured, not merely by when the incident occurred. In this structure, a claim must be both made and reported within the policy period (or within an extended reporting period) to trigger coverage. By design, this form shifts some timing risk from the insurer to the insured and tends to produce more stable, predictable pricing for short- to medium-term exposures, especially in professional liability insurance lines. It is commonly deployed in areas such as professional liability and certain cyber liability and D&O insurance programs, where the tail risk can be substantial but the underwriting window is manageable.

From a business and risk-management perspective, the claims-made form offers clear advantages and tradeoffs. For new ventures and rapidly evolving fields, it can lower initial premiums and simplify underwriting because the insurer does not have to project long-tail exposure far into the future. The form also incentivizes timely reporting of claims, which can aid in defense strategy and early risk mitigation. However, it introduces distinctive features such as the retroactive date, reporting requirements, and, where desired, extended reporting periods (ERPs) that allow for claims to be reported after the policy period ends. These elements help address gaps that could otherwise leave insureds without coverage for incidents that occurred during the policy term but were not reported until after it expired. See claims-made form and retroactive date for definitions, as well as extended reporting period for how coverage can be extended after lapse.

Overview

  • Claims-triggered coverage: A claim must be made during the policy period to qualify, and the act or omission that gives rise to the claim must have occurred while the policy was in force or under a defined retroactive date. This makes the timing of a claim critical to coverage.
  • Retroactive date: A date set in the policy that establishes the earliest point in time for acts or omissions that will be covered. If a claim arises from events before the retroactive date, it is typically not covered. See retroactive date.
  • Reporting requirement: The insured must report a claim within the policy period (or within an ERP). This is a gating mechanism that can affect coverage if a claim is discovered late.
  • Extended reporting period: An ERP provides additional time after the policy ends for reporting claims that occurred during the policy term. See extended reporting period.
  • Tail coverage and run-off: After cancellation or non-renewal, insureds may purchase tail coverage to maintain protection for claims made after the policy ends but arising from events during the policy term. See tail coverage and run-off.

Key features and terms

  • Claims-made form vs. occurrence form: In an occurrence form, coverage triggers by the time the incident occurred, regardless of when a claim is filed. In a claims-made form, coverage triggers by when the claim is made and reported, creating a different risk profile. See occurrence form.
  • Notice and cooperation: Policyholders must provide timely notice of claims and cooperate with defense efforts, a common provision across liability policies. See notice of claim.
  • Retroactive date: The policy may include a retroactive date to limit coverage to acts occurring after that date. See retroactive date.
  • Extended reporting period (ERP): If the policy ends, an ERP can extend the reporting window for claims that arise during the policy term. See extended reporting period.
  • Run-off and tail: After non-renewal or cancellation, insureds may purchase tail coverage or enter a run-off arrangement to cover claims made after termination but arising from prior periods. See tail coverage.

Differences from other forms

  • Predictability and costs: For many small businesses and professionals with predictable risk, the claims-made form offers stable, predictable pricing and the ability to tailor coverage with a defined retroactive date. See premium and underwriter considerations.
  • Coverage gaps: If a policy lapses without an ERP or proper tail, there can be gaps in protection for claims arising from prior periods. This is a central design concern of the form.
  • Long-tail risk management: For exposures with claims that can emerge long after the act, such as certain professional services, the interplay of retroactive dates and tail coverage becomes a critical planning issue. See long-tail risk.

Controversies and debates

  • Access vs. exposure: Critics argue that claims-made forms can create gaps in coverage for smaller practitioners who miscalculate renewal timing, leading to uninsured exposure during transitions. Proponents counter that ERP and tail options mitigate gaps while preserving pricing discipline.
  • Incentives and behavior: The need to report promptly can influence risk management behavior, encouraging early defense efforts and documentation. Some critics worry about the potential for early settlements to avoid future premium increases, while supporters view timely reporting as beneficial to all parties.
  • Tort reform and litigation climate: In broader debates about the cost of tort reform and the litigation environment, claims-made forms are sometimes discussed as tools that influence premiums and coverage availability. Proponents emphasize that these forms help insurers maintain solvency and price appropriate to actual risk, while critics may argue they reduce consumer protection in long-tail scenarios. See tort reform.
  • Widening use in tech and professional services: As new professional lines emerge (for example, certain cyber liability and technology services), claims-made forms spread because they align with how risk is measured in shorter, more predictable cycles. Supporters highlight the efficiency gains for startups and growing firms, while opponents warn that rapid growth can lead to gaps if tail coverage is not secured. See professional liability and cyber liability.

Practical considerations for insureds

  • Planning for tail risk: Prospective policyholders should assess the need for an ERP or explicit tail coverage to avoid gaps after renewal or lapse. See extended reporting period and tail coverage.
  • Credit and financing: Because premiums are typically calculated with a known tail, small businesses and professionals can budget more effectively, aligning insurance costs with expected revenue streams. See premium.
  • Underwriting strategies: Insurance buyers and brokers should understand how retroactive dates interact with past claims history and upcoming business plans to determine the most suitable coverage structure. See underwriter and broker.
  • Industry norms: Some sectors have a higher reliance on claims-made forms due to the pace of service delivery and risk profiles, while others rely more on occurrence forms for long-tail protection. See liability insurance.

See also