Claims-Made Coverage: Flexibility with Foresight

Claims-made coverage is more like a subscription service. It's active when you need it - covering incidents only if the policy is in effect when both the incident happens and the claim is made.

Claims-made policies are all about timing. To be covered, two things need to happen:

1. The claim must be reported while your policy is active.
2. The incident must have occurred after your retroactive date.

Think of it like a window - it only covers claims reported during the policy period for events that happened after the retroactive date.

Renewing your policy keeps coverage in place for past incidents, as long as your retroactive date remains unchanged.

Advantages:

• Budget-friendly at first. The premiums start low, which is great when you're building your practice.
• As you establish yourself, the premiums increase to compensate for prior acts but eventually level out after several years.
• Is the most commonly offered type of medical malpractice insurance.

Considerations:

• You'll need tail coverage to stay protected if you change policies or retire, which is an added cost (1.5 to 2x your current annual premium), unless you're able to get free tail with your carrier.
• Your limits are stretched for the duration of the entire time that you have your tail policy, be it a few years or beyond a decade. You only get one set of policy limits for tail.
• Over time, a claims-made policy might inch past the cost of occurrence coverage, when tail is factored in.

Claims-Made Policy Example

Let’s say a neurosurgeon has a claims-made policy with limits of $1 million per claim and $3 million aggregate per year. They’ve kept this coverage for five years without gaps.

• In Year 5, they receive three claims from incidents that happened in Year 1, Year 3, and Year 5.
• Since the claims are reported in Year 5, all three are subject to the Year 5 policy limits - not the limits from the years the incidents occurred.
• The insurer covers up to $1 million per claim but won’t pay more than $3 million total for all claims filed that year.
• If a fourth claim comes in, it could exceed the annual limit, meaning the doctor may be responsible for any uncovered costs.

That’s a key difference with claims-made policies -  no matter how many years you’ve had the policy, your coverage is tied to the year the claim is reported, not when the incident happened.

Why Do Claims Made Premiums Start Low?

Unlike occurrence policies, claims-made premiums start lower because the likelihood of a claim being filed grows as time goes on. Expect them to increase annually until they reach what’s called a mature premium - typically by Year 7.

Here’s a common breakdown:

• Year 1: 25% of the mature premium
• Year 2: 40%
• Year 3: 75%
• Year 7: 100% (Fully mature premium)

Example:
If your mature premium is $100,000 by 2025, your premiums may look like this:

• 2025: $25,000
• 2026: $40,000
• 2027: $75,000
• 2031 and beyond: $100,000

The Retroactive Date: Your Coverage Starting Point

Your retroactive date is one of the most critical details on a claims-made policy. It marks the earliest point an incident can occur and still be covered by your claims-made policy. Think of it as the starting line for your coverage. Any claims from incidents before this date won’t be covered, even if the policy is active when the claim is filed.

It’s a key detail to keep in mind - and one you’ll want to understand as you explore your coverage options.

What Is Tail Coverage and When Do You Need It?

Tail coverage kicks in when your claims-made policy ends, providing protection for claims filed after your coverage expires. Without it, any claims that surface later would be your responsibility.

You’ll typically need tail coverage when:

• You cancel a claims-made policy.
• You switch insurance carriers.
• You retire or close your practice.
• You transition to an occurrence policy.

Otherwise called Extended Reporting Period (ERP) endorsement, tail insurance is an add-on to your standard policy or purchased separately as standalone tail from a different carrier. It usually costs between 150% and 250% of your final annual premium. So, if your last premium was $100,000, tail coverage could cost anywhere from $150,000 to $250,000.

There are various duration periods of tail, including unlimited. We've created an entire page on tail insurance here.

Prior Acts Coverage: An Alternative to Tail Insurance

Prior acts coverage is a lesser-known option that can keep you protected for incidents that happened before your new policy starts - without needing tail insurance. It’s something you’d arrange with your new carrier, making it a useful way to avoid paying for tail coverage from your previous insurer if you had prior claims-made coverage.

However, not all insurers offer it, and eligibility typically depends on maintaining continuous coverage with no lapses.

• When It’s Useful: If you’re switching insurers and want to maintain coverage for past incidents.
• When It’s Not Ideal: If you’re retiring or no longer need malpractice insurance.

Claims-Made vs. Occurrence Insurance: What’s the Difference?

The biggest difference between claims-made and occurrence policies comes down to when the coverage applies. Here’s how they compare:

Most claims-made policies follow a “claims-made and reported” model, meaning both the incident and the claim must be reported during the active policy period.

Occurrence policies, on the other hand, come with higher upfront costs but offer the benefit of no tail insurance. They provide ongoing protection for claims that may be filed years later.

If you're looking for lower initial premiums, a claims-made policy may be the most attractive. But keep in mind that you’ll likely need to factor in the cost of tail coverage when you change jobs or retire.

The right choice comes down to your career plans, financial goals, and how long you intend to stay at your practice.

Cost Considerations of claims-made and occurrence

Occurrence policies tend to be more expensive upfront compared to claims-made policies, but the stability and long-term advantages can balance out the cost.

• Upfront Costs: Higher initial premiums, but they remain consistent year after year.
• Long-Term Savings: No tail coverage expenses when you retire or switch jobs.
• Coverage Certainty: The amount of coverage is based on the year of the incident, not the claim year.

Example: If your policy had a $1 million per claim limit in 2025, that’s the amount available even if a lawsuit is filed years later.

For doctors who prefer fewer administrative concerns and long-term protection, an occurrence policy is often a solid choice, with the right carrier. However, claims-made policies are still the most popular due to their availability and costs.

The Big Difference in Policy Limits

Your policy limits determine how much your insurer will pay per claim and over a policy period. The key difference between claims-made and occurrence policies is how those limits apply.

• Occurrence Policies: Each policy year has its own set of limits that remain in place indefinitely. As a result, those limits stack over time. If multiple claims arise from different years, you could have additional protection from each year’s coverage.
• Claims-Made Policies: Limits apply only to the current policy period when the claim is reported. Past policy years don’t add to your available coverage. If a claim is reported during a time when your policy limits are insufficient, you may face out-of-pocket expenses.

Other Factors to Consider

Choosing between claims-made and occurrence isn’t just about cost - it’s about what makes sense for your career and financial situation.

Here’s what might tip the scales:

• Budgeting: Consider the total cost. Claims-made policies are cheaper upfront, but the price of tail coverage can add up. Occurrence policies offer predictable expenses without surprise costs down the road.
• Your Specialty: Certain specialties -  especially higher-risk ones like neurosurgery or OBGYN - may find claims-made policies more accessible since occurrence policies can be harder to find.
• State Availability: Not all states have occurrence policies readily available, so claims-made may be your best or only option.
• Career Flexibility: Planning to switch practices? Keep in mind how tail coverage or prior acts coverage will factor into your decision.

Claims Made vs Occurrence FAQs

What is the difference between claims-made and occurrence insurance?

The key difference is when coverage applies.

• Claims-made policies cover claims filed and reported while your policy is active, as long as the incident happened on or after your retroactive date.
• Occurrence policies cover incidents that happen during your policy period, no matter when the claim is filed - even years later.

If you switch from a claims-made policy, you’ll need tail coverage to protect against claims filed after your policy ends. With an occurrence policy, there’s no tail coverage needed.

Does claims-made insurance need tail coverage?

Yes. If you have a claims-made policy and leave your current role, switch carriers, or retire, tail coverage (also called an Extended Reporting Period endorsement or ERP) ensures you’re protected against claims filed later. Without tail coverage, any lawsuit filed after your policy ends won’t be covered - even if the incident happened while you were insured.Some employers cover the cost of tail insurance, but in other cases, it may fall on the physician. It’s always smart to clarify who’s responsible for tail coverage before signing a contract.

What is the retroactive date for claims-made and reported policies?

Your retroactive date is the starting point for coverage on a claims-made policy. It’s the earliest date an incident can occur and still be eligible for coverage under your current policy. Think of it as your coverage history marker.

If you maintain continuous coverage and keep the same retroactive date when switching insurers, prior acts insurance will be needed, and thus those policy years will stay protected. However, if your retroactive date is removed or reset, you would lose coverage for past incidents unless tail coverage is purchased. This makes it essential to keep track of your retroactive date when renewing or switching policies, ensuring you remain protected for any prior claims.

Is it better to have claims-made or occurrence insurance?

It depends on your specific situation. Claims-made policies generally have lower upfront premiums but require tail coverage if you switch jobs or retire. Occurrence policies usually cost more initially but include built-in protection without needing tail insurance.

Your decision may come down to factors like your career plans, financial goals, and how long you expect to stay in one practice. Both options offer reliable coverage - the right choice is the one that best supports your needs.