What is Claims-Made Coverage?
You are insured under a claims-made policy, meaning that the policy in force at the time the claim is made against you is the one that responds. (This is just the reverse of auto insurance, where the policy responding is the one in effect at the time of the incident, regardless of when a claim is brought against you.) The incident must happen after the retroactive date to be covered.
Under the claims-made form of insurance, the premium increases every year over a five year period and then levels off and is only affected by overall rate increases or decreases for everyone. Sometimes, there are credits for being a new-to-practice doctor and risk management credits which further reduce the premium in the early years.
How Does Claims-Made Insurance Work?
In the first year, the policy covers claims reported during the first year based on work also performed in the first year. The premium is relatively low. In the second year, the policy covers claims reported during the second year based on work performed during the first and second years. In the third year, the policy covers claims reported during the third year based on work performed during the first, second, and third years. The same holds true for the fourth and fifth years. The fifth-year claims made policy is called a “mature” policy.
What is an “Extended Reporting Endorsement” or “Tail” Coverage?
Because a policy needs to be in place for coverage to occur, an issue arises when you discontinue coverage and wish to be protected for claims reported after the date of termination of coverage. You have the option of purchasing a “tail” policy, which provides protection for claims which are reported during the tail period based on incidents occurring while coverage was in effect.
Customarily, the company provides a free “tail” policy if any of the following occur during the policy period:
- Retirement from your designated practice provided you have been with the company for five consecutive years.
If you do not purchase a tail policy, or are not eligible for a free tail, there is no coverage for claims reported after cancellation of your policy.
How Much Does Prior Acts Coverage Cost
Under the claims-made form of insurance, it is simple to switch from one carrier to another and not have a gap in coverage. The new carrier simply sets the new retroactive date the same as the one on your old policy. There is no need to purchase a costly tail policy from the old carrier (unless required by your employer). You will still be covered for your prior acts. The new carrier will require proof of prior coverage with your retroactive date along with a loss run.
What if I change my Limits of Liability on the Claims-Made Policy?
An advantage of the claims-made policy is that you can change your limits any year at renewal. The new limits will apply back to the retroactive date. Many doctors increase their limits as time goes on as they have more to lose in a lawsuit. The new, higher limits, will apply all the way back to the beginning of their practice, if that is when the retroactive date was set.