Study 1 - Claims-Made and Occurrence Policies Flashcards
Occurrence
1) A happening or event
2) The continual or repeated exposure to an unfavourable situation neither intended nor expected to cause injury or damage
3) The grouping of related losses into a single loss situation
Occurrence-based policy
Must be in force when the incident or occurrence takes place for the policy to respond to the loss. Does not matter when the claim is made against the insured or the when the claim is reported to the insurer.
Duties in the Event of Occurrence, Claim, or Action
- Insurer is notified promptly of an occurrence that may result in a claim
- How, when, and where the occurrence took place; and
- The names and addresses of any injured persons and of witnesses
- If a claim is made or action is brought against insured, the insurer must receive prompt written notice of the claim or action
- Insured must:
- Immediately send copies of any demands, notices, summonses, or legal paper received in connection with the claim or action
- Authorize the insurer to obtain records and other information
- Cooperate with the insurer in the investigation, settlement, or defence of the claim or action
- Assist the insurer, upon their request, in the enforcement of any right against any person or organization that may be liable to the insured
- No insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid without the insurer’s consent
Incurred but not reported (IBNR) losses
An estimate of the amount of an insurer’s liability for claim-generating events that have taken place but have not yet been reported to the insurer.
The sum of of IBNR losses plus incurred losses provide an estimate of the insurer’s eventual liabilities for losses during a given period.
Long-tail liability
Refers to liability for injuries that may take several years before they become known to the insured and before they are reported as a claim.
Claims-made policy
Refers to an insurance policy that provides coverage when a claim is made during the policy period, regardless of when the claim event took place. A claims-made policy is most likely to be purchased when there is a delay between when claims occur and when they are filed.
2 variations of claims-made policies
Narrow & Broad
Narrow Policy aka claims-made and reported policy
States that “the claim must be made against the insured and reported to the insurer” within the policy period. No IBNR exposure.
Broad Policy aka claims made policy
States that “the claim must be made against the insured during the policy period”. No mention as to when the incident must be reported to the insurer.
Retroactive Date
Claims-made policies make provision for a retroactive date - a cut-off date before the inception date of the policy defining the period of time for which an incident will qualify for coverage.
Retroactive dates precede the inception date of the policy by a period of time that the insurer is prepared to accept. The date usually coincides with the date the coverage was first put in place by the insured.
Extended Reporting Period
Aka tail cover. Commonplace on claims-made policies due to claims only being covered if they are made during the policy period.
Ratemaking
The process of compiling and analyzing data to establish rates that accurately reflect the level of risk. Usually performed by actuaries.
Pure Loss Premium
The amount of premium available to pay losses and loss expense.
Pure Loss Premium = GWP - All Expenses other than loss expense
Rate = (Loss + Loss Expense) / Pure Loss Premium
Gaps in Coverage
Can arise whenever:
- A policy is renewed with a different company
- When multiple policies are required to provide the limits needed by the insured
- When an occurrence form is substituted for a claims-made form or vice-versa.
Switching to Claims-Made on the CGL
- Only affects the BI & PD insuring agreement
- Personal injury, medical payments, and tenants legal liability remain the same whether the CGL is occurrence or claims-made
