Types of Medical Malpractice Insurance: Claims Made vs. Occurrence Explained

As a doctor, one of the most important business decisions you will make is choosing a medical malpractice insurance policy. The two most common types are occurrence-based and claims made policies. While they both provide coverage for alleged malpractice claims, there are key differences you must understand to determine which is right for your practice.

An occurrence policy provides coverage for any incidents that occur during the policy period, regardless of when claims are reported.

A claims made policy only provides coverage for claims that are both reported and occur during the coverage period.

Most insurance companies offer claims made policies, with a select few that offer occurrence based coverage.

The option you choose will depend on factors like your specialty, location, and risk profile.

This guide provides an in-depth review of both occurrence and claims made medical malpractice insurance so you can make an informed choice for your practice.

Occurrence Policy

• Occurrence-based policies cover incidents that happen during the policy period, regardless of when claims are reported.
• Before the 1970s, occurrence-based policies were the standard in malpractice insurance plans. However, as the number of claims rose and became increasingly costly, insurers shifted towards offering claims-made polices. This change allowed insurance companies to better manage and anticipate potential claims within a more defined time frame.
  

• The main benefit of occurrence insurance is that it offers continuous coverage for each policy year that you've had that coverage. Once the policy ends, you still have coverage for anything that occurred during that time frame. That means you do not have to purchase tail insurance to extend the coverage, like in a claims-made policy.

• Another solid benefit is that you receive a new set of limits for each policy year to cover claims that happen during that specific year. For year 1, let's say you get $1M/$3M for example (which is common). Year 2, you receive another set of limits of $1M/$3M. Year 3, yet another set of limits are given to you of $1M/$3M. And so on. The limits are stacked and you get to keep those limits should you ever need them whether during your career or after you retire.
• This is very different from a claims-made policy as the limits for a tail policy are stretched for the entire coverage period, be it one year or several years.
• Occurrence premiums are often higher since insurers are taking on more risk and more limits. Though if you factor Tail Insurance into the equation, it could end up being about the same cost as a claims-made policy in the long run.
• Premiums typically remain level or increase gradually over time based on claims experience.
• Occurrence policies are easier to own as there aren’t any additional policies needed with prior acts or tail coverage.
• Occurrence coverage may be limited or unavailable in some states or for certain specialties.
• It’s important to select a solid carrier with strong financials due to coverage lasting well into the future; you want to make sure the carrier will be able to pay for claims should any arise.

Occurrence Malpractice Insurance Example

Consider a surgeon who has had an occurrence policy since starting their practice. Two years after retiring, one of their former patients unfortunately suffers complications and decides to pursue a malpractice claim related to a procedure the surgeon performed 3 years prior. Since the surgeon had an occurrence policy during the time that this patient had the surgery that caused the alleged complication, even though now retired, the policy will cover this claim. The surgeons premiums did not change drastically over their 35 years of coverage, and they did not have to purchase any tail or prior acts coverage.

Claims-Made Policy

• Claims-made insurance policies, on the other hand, only provide coverage if the incident occurs and the claim is filed within the policy period.
• Premiums often start lower but rise every year to include the previous year's prior acts. When switching carriers, you'll need to obtain prior acts coverage for any gaps. You also have to factor in the cost of tail insurance when switching jobs or retiring.
• Claims made polices contain a retroactive date that is very important to know in this type of coverage. What is a retroactive date? The earliest date for which a claims made policy will cover incidents. It's usually your policy's start date of when you first obtained that policy. Anything before this date will not be covered.
• The role of tail insurance in claims made policies: When switching carriers or retiring, you'll need to obtain tail insurance to extend the reporting period of the previous policy beyond expiration. That is why it is called "Extended Reporting Period Endorsement." Tail provides coverage for claims reported after a claims made policy ends. Tail can be purchased limited and unlimited time frames. Although it can be expensive, at about 1.5 to 2x plus the cost of your current annual premium, it is very necessary with a claims made policy if looking to retire, sell your practice, or work for a different employer (moving from one carrier to another).
• Keep in mind that with tail insurance, the policy limits (discussed further on) are very important to understand as they will have to cover all claims during the life of the tail coverage. Unlike Occurrence Insurance, you only get one set of policy limits for the lifetime of the tail policy, whether it's a few years or beyond a decade. So for a typical policy of $1M/$3M, that is the only set of limits you have for the duration of your tail insurance. Policy limits may become exhausted if you get hit with multiple large claims within a short period of time.

• Prior acts coverage: Provides coverage for incidents that occurred before obtaining a claims made policy with a new carrier.

Claims Made Malpractice Insurance Example

Consider a physician who has had a claims made policy for several years and has recently renewed their policy. During the current coverage period, one of the physician's patients suffers complications and decides to pursue a malpractice claim against them. Since the claim was filed during the current coverage period, and the policy is still active, the physician's claims made policy will cover this claim. As long as the Doctor continues to renew their claims made policy, any new claims filed during future coverage periods will also be covered. When the Doctor needs to switch jobs or retire, they would need to purchase tail insurance to provide coverage outside of this claims made policy.

What is the Best Kind of Medical Malpractice Insurance? (Claims Made vs Occurrence: Advantages and Considerations)

Each policy type, occurrence and claims-made, offer unique advantages, catering to various practice styles and individual physician preferences. Let's clarify the differences.

Occurrence Coverage: Set It and Forget It

Think of occurrence coverage as the 'one-and-done' option. Once you have it, you're covered for any incidents that happen (or occur) while the policy was active, regardless of when the claim is filed.

For example, if there's a claim filed today about an incident that happened 3 years ago (while you had the occurrence policy), it's the insurance from 3 years ago that takes care of it.

Even if you switch jobs, retire, or the policy expires, you're protected for claims related to incidents during the policy period of which you had coverage.

Advantages:

• No additional insurance is needed, like tail or prior acts coverage.
• You receive a new set of limits every year for coverage of claims that occurred in that year. The limits are stacked.
• Simplicity: Once you're covered, you can focus on your work, not your insurance policy.

Considerations:

• It's usually the pricier option, reflecting its extensive coverage.
• If the insurer shuts down, coverage might be at risk, so it's very important to choose a strong carrier that is financially sound and has been around for a while.
• It's not a universal option—some states and insurers don't offer it.

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.

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.

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Bridging Gaps: 'Tail' and 'Nose' Coverage Explained

Transitioning between policies doesn't have to leave you vulnerable. 'Tail' coverage is your safety net for claims-made policies, covering past incidents even after your policy ends. 'Nose' coverage is the proactive counterpart, covering incidents that occurred before your current policy started.

Making the Call: Which Policy Fits You Best?

Your choice between an occurrence and a claims-made policy depends on your practice's needs, your career stage, and how you manage risks and finances. It's about picking the policy that fits like a glove—providing peace of mind so you can focus on what you do best.

Your Next Move:

Ready to safeguard your career with reliable coverage? Connect with our medical malpractice insurance brokers. We're here to support you in making an informed decision.

While you focus on your patients, we'll focus on protecting your practice. Reach out to DrsCoverage today and secure your practice with tailored protection.

Cost Comparison: Claims Made vs Occurrence Malpractice Policies

When comparing occurrence and claims made malpractice insurance policies, cost is a key factor for Doctors to consider. Each policy type has their own set of pros and cons in terms of affordability and coverage.

• Occurrence policies are more expensive (initially) than claims made policies for its extensive coverage and stacked policy limits.
• Claims made policies are typically less expensive (initially) than occurrence policies for the first several years, but do increase every year to account for prior acts, and also require tail insurance when you switch or expire policies (which is 1.5 to 2x the cost of your latest annual premium).

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To provide a better understanding of the estimated costs involved, here is an example comparing claims-made and occurrence-based policies for OB/GYNs in Texas over a 10-year period.

Initial Premium Estimates:

Based on industry standards, let's assume the following:

• Claims-Made Policy: $30,000 annually
• Tail Coverage: $60,000
• Occurrence-Based Policy: $36,000 annually

Assumptions:

• Claims-Made Policy: 10% annual increase for the first 5 years, then 3% increase for the next 5 years.
• Occurrence-Based Policy: 3% annual increase throughout the 10 years.

Total Cost after 10 years

• Claims-made policy (with tail): $423,338
• Occurrence policy (no tail needed): $403,693

Key Takeaways:

• Claims-Made Policies: Start with lower initial premiums but require tail coverage, which adds a significant cost at the end of the policy period.
• Occurrence-Based Policies: Have higher initial premiums but do not require tail coverage, leading to a more predictable and sometimes lower total cost over time.

This example highlights the importance of considering both the immediate and long-term costs when choosing between claims-made and occurrence-based medical malpractice insurance policies.

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factors that affect the cost of both policy types:‍

• Your specialty and procedures performed: Higher-risk specialties like surgery or obstetrics tend to pay more than lower-risk specialties.
• Your location: Malpractice costs and claim rates vary significantly between states and regions. Rural or suburban areas often have lower costs than cities. Counties within the same state can cause premiums to be higher in one versus the other. As in Miami-Dade county versus less populated areas of Florida or Wayne county with the City of Detroit in Michigan versus Ottawa County.
• Limits of liability: Higher coverage limits, such as $2 million/$4 million, understandably cost more than limits that are $1 million/$3 million.
• Deductibles: A higher deductible, such as $25,000 per claim, can lower your premiums compared to a $5,000 deductible.
• Discounts: Some carriers offer discounts for doctors with a clean claims history, those who complete risk management courses, and members of certain medical associations.
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At DrsCoverage, we can help you when determining which policy type is right based on your practice needs, risk profile, and long-term financial goals.

Ready to make an informed decision? Contact us now for your complimentary, no-obligation quotes on Claims Made and/or Occurrence Malpractice Policies from premier A-rated carriers.

Variations in Coverage Limits Between Occurrence and Claims Made Policies

When purchasing medical malpractice insurance, doctors must understand the differences in coverage limits between occurrence and claims made policies.

Occurrence policies provide coverage for incidents that occurred during the policy period, regardless of when a claim is reported. The coverage limits - for example, $1 million per occurrence and $3 million annual aggregate - apply to each policy year. If an incident occurs in year one but a claim is not filed until year three, the limits of the year one policy would apply. The limits also accumulate each year the coverage is purchased or stacked (subject to any payment of claims), thereby increasing the coverage limits over time as the years go on.

In a claims-made policy, the coverage limits apply to claims filed during the policy period, provided the incident occurred after the retroactive date and before the end of that policy period. For instance, if the retroactive date is 10 years in the past and the current policy provides $1 million/$3 million in coverage, those limits are specific to any claim made during the current policy year for incidents that happened after the retroactive date.

When a healthcare provider leaves a claims-made policy and purchases tail coverage, this Extended Reporting Period Endorsement extends the ability to file a claim after the policy ends. The tail policy carries the same limits as the last active policy, in this case, $1 million per claim and $3 million in aggregate. Significantly, these limits apply to the entire duration of the tail coverage period, regardless of whether it spans a few years or extends beyond a decade. This means that even if a claim is made several years after the policy has ended, as long as the incident occurred while the original policy was active and after the retroactive date, it would still be subject to the $1 million/$3 million limits of the tail policy. If multiple claims need to be filed during the duration of the tail policy, those limits could become exhausted and the doctor may then need to be personally liable for anything outside the allotted limits.

Doctors should carefully consider their coverage needs and risk tolerance when choosing between these policy types. Occurrence coverage provides more comprehensive protection but at a higher cost, and comes with the possibility of a carrier going bankrupt in the future and thus not being able to cover claims. Although an admitted carrier is backed by the Department of Insurance in the case of a carrier becoming insolvent, they may not be able to cover the full claim amount. Going with a carrier that has a solid reputation and strong financials may lessen the chance of this happening.

Claims made policies have more restrictions on limits, but lower premiums
(initially), and are more readily offered.

For some specialties like obstetrics, the extended coverage of an occurrence policy may be worth it due to longer statutes of limitations. In states with particularly litigious legal environments, higher occurrence limits may be recommended. As mentioned previously though, occurrence coverage may not be available to certain specialties or states.

Doctors must understand how coverage limits differ between occurrence and claims made medical malpractice insurance to make an informed choice. Evaluating factors like retroactive periods, aggregate limits, and the potential for future claims can help determine the right policy to fit your needs. Comparing quotes from multiple carriers for both occurrence and claims made coverage is the optimal way to find the right policy with comprehensive protection. At DrsCoverage, we can help unpack all of these insurance nuances and do the legwork of shopping around for you, at no additional cost.

FAQs About Claims Made Versus Occurrence Malpractice Insurance

What is an Occurrence Policy?

The definition of occurrence insurance is a policy that offers coverage for any incidents that occurred during the active policy period, regardless of when a claim is reported. For example, if you have an occurrence policy in effect from January 1, 2022 to December 31, 2022 and an incident happens on December 15, 2022 but a claim isn’t filed until August 20, 2024, the insurance policy that was in effect when the incident happened (Dec 15, 2022) would cover the claim. Even if you decided to switch to a new policy in 2024, the old 2022 occurrence policy would be used for the claim. There is no need for tail insurance in occurrence based policies. Occurrence policies offer continuous coverage and peace of mind that any events within the policy period will be covered, even if reported later. However, occurrence policies may be more expensive and not offered in some states or for certain specialties.

What is a Claims Made Policy?

A claims made policy provides coverage if the policy is active when the incident takes place and when the claim is filed. For example, if you have a claims made policy that had a starting retroactive date on October 19, 2018 with continuous coverage until January 7, 2024 - if a claim was filed on December 3, 2023, the claim would be covered. Claims made policies are often more readily available and affordable but require the purchase of “tail coverage” to provide protection for claims filed after the policy end date. Tail coverage extends the reporting period for claims at an additional cost, though some carriers do offer free tail if you are retiring or have been with them for a certain period of time.

Can I Switch Between Occurrence and Claims Made Malpractice Policies?

Switching between occurrence and claims made malpractice insurance policies is possible, but there are several factors to consider regarding coverage and cost, like the need for tail insurance or prior acts coverage. It’s best to consult with an experienced medical malpractice insurance broker for your specific needs and risk profile.

Which malpractice insurance is better claims made or occurrence?

When choosing between claims made and occurrence malpractice insurance policies, it depends on various factors like: where you practice, what specialty you’re in, if occurrence polices are offered in your state, premium costs in the short and long term, and preferred policy limits.

Which Policy is Right for You?

When choosing between occurrence and claims made malpractice insurance, weigh the pros and cons of each option carefully with your insurance broker. Occurrence policies provide lifelong coverage for events that occur within the policy period, which can make them seem more of a set it and forget it type policy, but are more expensive upfront. However, there is a possible risk that the insurance carrier could become insolvent, potentially impacting their ability to fulfill claims long after the policy period has ended. When choosing an occurrence-based carrier, it is best to choose one with a lengthy history of financial stability, which may reduce this risk, but not entirely. Claims made policies typically have lower premiums (initially), then require tail coverage for complete protection when switching carriers or retiring. Claims made policies tend to be the more readily available choice. The best policy type depends on a doctor's individual situation, specialty, risk profile, and coverage needs both now and in the future.

Get the Right Malpractice Coverage for Your Needs

As a Doctor, choosing the right medical malpractice insurance is critical to protecting your practice and career. While occurrence and claims made policies both provide coverage, they differ significantly in how they operate and the level of coverage they offer. Do your due diligence to understand the pros and cons of each based on your unique situation.

Speaking with an insurance broker can help you determine which type of coverage is right for your unique situation. Protecting yourself and your practice should be a top priority, so take the time to make an informed decision about this critical choice. Contact us today to learn more.

At DrsCoverage, we work with physicians and surgeons, in either private practice or medical group structures. We analyze your unique practice needs and risk profile to help you obtain either an occurrence or claims made policy, in addition to complimentary insurance products if needed. Our goal is to help you mitigate risk, providing tailored solutions so you can focus on patient care. Contact us to receive free, no-obligation quotes from top A-rated carriers. Policy availability, terms, and conditions may vary. We are a licensed insurance brokerage dedicated to serving your medical professional liability needs.