A claims made policy is becoming quite common, but not everyone understands the implications of being a claims made policy-holder. A very common example of a claims made policy is a Professional Indemnity/Civil Liability policy.
A claims made policy requires that a claim be made during the policy period, unlike a Public Liability policy which can be said to have a “long tail”, meaning a claim can be made against the policy long after it’s ceased to exist.
In a nutshell, if a claims made policy expires, no further claims can be made against it. Also, if a claim is not notified to the Insurer during the policy period, then the claims-made policy will not respond.
So, what does that mean for the claims made policy-holder?
• Does it mean that the policy-holder needs to keep a claims made policy in force perpetually to avoid any future claims? No. Most claims-made policies have the option of purchasing run-off cover.
• Does it mean that the policy-holder is restricted from shopping around for a better deal when it comes to “renewal” time? No. As long as every detail of the claims made policy history is disclosed to the prospective new Insurer, and those details are acceptable to that Insurer, they will usually underwrite a new policy with a retroactive date set at the beginning of the previous policy(s).
Another aspect of a claims made policy is that once it expires…it expires. There is usually no provision for a hold covered or cover note period unless expressly agreed to in writing by the Insurer.
Claims made policies are usually also subject to an annual declaration prior to new terms (for the coming policy period) being offered. It’s important to note that unlike most general Insurance policies, claims made policies usually expire at the end of the policy period and a fresh contract of Insurance is then arranged for the coming 12 months.
The word “renewal” is often used when negotiating the new policy, but this is technically incorrect.
For more information on Claims Made Policies or any Insurance policy questions please contact Nepean Brokers at 03 5982 2330.