Not all medical malpractice policies are the same. Understanding the difference between a “claims–made” policy and an “occurrence” policy may be difficult as there are significant differences in coverage. Please keep in mind that occurrence policies have all but dried up in today’s marketplace.

What is a “claims–made” policy? A claims–made policy covers claims made against you only while the policy is in effect. The advantage is that the premiums are based on actual experience. The disadvantage is that the policy must be continued indefinitely to assure coverage for claims filed in the future for actions that occurred in the past. Purchasing “tail” coverage allows you extended reporting for claims made after policy expiration for incidents occurring during the policy period.

What is an “occurrence” policy? An occurrence policy covers you for actions that occurred while the policy was in effect. It does not matter if the coverage is in effect at the time the claims was reported, and thus, the difference between the claims–made policy. So even if you cancel your policy, you would not have to purchase a “tail” since you will still be covered for events that occurred while the policy was in effect.

Claims–made and occurrence policies are priced differently. Claims–made premiums tend to be lower at policy inception, and generally increase each year at renewal, reaching a premium level similar to that of an occurrence policy after approximately 4 years. Occurrence premiums are usually higher at policy inception than claims–made coverage. Occurrence coverage estimates claims for many years in the future where claims–made coverage addresses only claims expected on a year–to–year basis.

For example, assume an insured is expected to have $100 in losses per year over a 5–year period. Given a 5% rate of inflation, premium pricing would be structured like so:

A properly managed claims–made policy can avoid possible gaps in coverage. By keeping the same retroactive date, insureds are protected from new claims, no matter when the act actually took place. Purchasing tail coverage only comes into play when,

1. The insurance company decides to non–renew
2. You decide to retire or
3. You accept a new position where your insurance coverage is paid for as part of the job and no longer need the coverage to be in force but still want to be able to cover claims that may be occur in the future

Occurrence policies are difficult to obtain for more hazardous risks like medical malpractice and products liability. Therefore claims–made policies predominate.