Claims-made policies cover claims that are made during the policy period provided that the incident giving rise to the claim occurred on or after the retroactive date and on on or before the termination date of the policy.
Claims-made policies cover claims reported in a single year, arising from incidents occurring while you were continuously insured under a claims-made policy. Thus, claims reported this year are covered by this year’s policy; claims reported next year are covered by next year’s policy, and so on.
In the early years of coverage, a claims-made policy is less expensive than an appropriately priced occurrence policy. However, claims-made premiums must increase significantly in a step fashion during the initial years of coverage. This is necessary because each subsequent year provides coverage for claims reported as a result of medical treatment provided over a longer period of time.These step increases are over and above rate increases and continue for a certain number of years until the policy is "mature."
ProAd’s step increases are spread out over the first five years of coverage. At that point, the actuarial expectation of losses levels off relative to any additional years of exposure.
Some of the key terms associated with claims-made step increases:
- Retroactive date — A provision found in your claims-made policy that eliminates coverage for claims produced by wrongful acts that took place prior to a specified date, even if the claim is first made during the policy period.
- Effective date — The date on which an insurance binder or policy goes into effect and from which time protection is provided.
- Limits — The total amount of losses to be paid under an insurance policy or reinsurance agreement.