There are simpler ways to explain this. Well, maybe not simpler as I go back and re-read what appears below, but maybe a little more straightforward.
An occurrence-based policy covers claims stemming from events that happen (“occur”) during the policy period. The claims may be raised during that period, or may not be brought to the insured’s attention until years later (subject to applicable statutes of limitations), but the policy that was in effect at the time the event took place is the one that will respond.
A claims-made policy covers claims that are first brought to the insured during the policy period. These include claims stemming from events during that policy year, and events that may have taken place in prior years, as long as the events were after the policy’s retroactive date. The retro date is a cut-off to prevent the insurer from having to pay for claims further back in time. If an event happens this year but a claim is not raised until two years from now, the policy that is in effect two years from now is the one that would be triggered as long as its retro date is earlier than the date of the event. This makes it very important to maintain claims-made policies in an uninterrupted chain over time, and to avoid allowing the retro date to be moved forward. If you can keep claims-made coverage in place on the same terms over a period of years, it ends up being similar to occurrence-based coverage. But advancing the retro date can completely mess that up.
The main problem with incongruent coverage features, i.e. occurrence-based primary and claims-made excess, is that if the excess isn’t managed properly, and the claim comes in a subsequent policy period when the retro date was advanced beyond the event date and no tail coverage was arranged for delayed claims from earlier periods, you won’t have any excess protection.
Definitely not Insurance 101, but the main takeaway is that you shouldn’t mix occurrence and claims made forms for the same type of insurance at the same time.
While having CGL & XS on different forms may be confusing, and may make things unnecessarily complicated both the insured and the agent, it may have it’s advantages. GL CAT losses are infrequent, having CGL on occurrence assures each policy period has its own aggregate limit, and having XS on claims-made provides the opportunity to the insured to increase the XS limit at a later year as the business grows.
There are simpler ways to explain this. Well, maybe not simpler as I go back and re-read what appears below, but maybe a little more straightforward.
An occurrence-based policy covers claims stemming from events that happen (“occur”) during the policy period. The claims may be raised during that period, or may not be brought to the insured’s attention until years later (subject to applicable statutes of limitations), but the policy that was in effect at the time the event took place is the one that will respond.
A claims-made policy covers claims that are first brought to the insured during the policy period. These include claims stemming from events during that policy year, and events that may have taken place in prior years, as long as the events were after the policy’s retroactive date. The retro date is a cut-off to prevent the insurer from having to pay for claims further back in time. If an event happens this year but a claim is not raised until two years from now, the policy that is in effect two years from now is the one that would be triggered as long as its retro date is earlier than the date of the event. This makes it very important to maintain claims-made policies in an uninterrupted chain over time, and to avoid allowing the retro date to be moved forward. If you can keep claims-made coverage in place on the same terms over a period of years, it ends up being similar to occurrence-based coverage. But advancing the retro date can completely mess that up.
The main problem with incongruent coverage features, i.e. occurrence-based primary and claims-made excess, is that if the excess isn’t managed properly, and the claim comes in a subsequent policy period when the retro date was advanced beyond the event date and no tail coverage was arranged for delayed claims from earlier periods, you won’t have any excess protection.
Definitely not Insurance 101, but the main takeaway is that you shouldn’t mix occurrence and claims made forms for the same type of insurance at the same time.
While having CGL & XS on different forms may be confusing, and may make things unnecessarily complicated both the insured and the agent, it may have it’s advantages. GL CAT losses are infrequent, having CGL on occurrence assures each policy period has its own aggregate limit, and having XS on claims-made provides the opportunity to the insured to increase the XS limit at a later year as the business grows.