Insurance
  • Occurrence or Claims-Made?

    For CRNAs, there are two forms of malpractice insurance: occurrence and claims-made. It is important to understand the differences between these two forms of coverage.

    Occurrence coverage is the simpler of the two. If you have a homeowners’ policy or an automobile policy, the liability coverage on those policies are provided on an occurrence basis.

    Claims-made malpractice insurance did not exist until the 1960s. Claims-made insurance was developed by insurance companies to reduce and eliminate their exposure to claims. Because of its complexity, claims-made insurance is usually offered only to medical professionals where the potential of severe and frequent claims exists. Claims-made insurance is not typically offered to the general public.

    There are three significant differences between occurrence and claims-made policies: how coverage is triggered; the limits of liability provided; and how the premiums are charged.

    Coverage Trigger

    An occurrence policy covers you for an incident that occurs while the policy is in force. As long as the incident that brought rise to the claim occurred during the policy period, the policy provides an unlimited time period in which to report claims. In effect, an occurrence policy offers permanent coverage for incidents that occurred during the policy period. This is even true after the policy has lapsed or has been cancelled.

    For an incident to be covered under a claims-made policy, it must meet two criteria. First, just like an occurrence policy, the incident in question must occur while the claims-made policy is in force. Second, the claim must also be made while the policy is still in force. Claims which are made after the coverage period ends will not be covered, even if the incident occurred while the policy was in force.

    So how do you protect yourself from claims after your claims-made coverage has ended? This is where claims-made coverage starts to get complicated.

    When a claims-made policy ends, the policyholder has the option of purchasing an endorsement that allows for an additional period of time to report claims. This endorsement is often referred to as a “tail.”

    If you purchase a claims-made policy, you will have the option of deciding whether or not to purchase a tail after your coverage ends. If your employer provides you with claims-made coverage, be aware that coverage may not be available to you if your employer fails to buy the tail. The purchase of the tail is a critical component of a claims-made policy.

    Limits

    Occurrence coverage offers greater limits of liability than claims-made. Each occurrence policy provides the policyholder with a separate set of limits. During the annual policy term, a policyholder with occurrence coverage will typically have limits of $1 million per claim and $3 million in total. If that same individual has an occurrence policy in force for five years, there would be $15 million (3 million X five years) in total limits available.

    Unlike occurrence policies, claims-made policies are considered continuous. Consider a claims-made policyholder who has limits of $1 million per claim and $3 million in total. Whether this policyholder has a claims-made policy in force for one, five, or 10 years, the individual would have only $3 million in total limits available.

    Premiums

    Occurrence premiums remain level over time and do not change year to year. Claims-made premiums start out lower than occurrence premiums. Why is this? Because both the incident and the claim must happen during the policy period, the claims-made insurance company has little risk of loss the first year a new policy is in force. Because the risk is lower, the premium is less. As the policy continues to renew every year, the period of coverage expands, and the insurance company’s risk of loss increases. That’s why claims-made premiums “stair-step up” over a four-year period and are equivalent to occurrence premiums by the fifth year. While claims-made premiums may appear less expensive than occurrence premiums, that is not the case once you factor in the cost of the necessary tail.

    This article was previously published in the September 2015 issue of AANA NewsBulletin. The AANA NewsBulletin ceased publication in July 2020.

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