What is the significance of a claims-made policy in insurance?

A claims-made policy is significant in insurance because it specifically limits coverage to claims that are made during the policy period. This means that for a claim to be eligible for coverage, it must be reported while the policy is active, regardless of when the actual event leading to the claim occurred.

This structure emphasizes the importance of having continuous coverage, as a lapse in the policy could leave a claimant without protection for events that happened in the past. As claims-made policies typically require the insured to maintain coverage over time to be protected against past actions, it underscores the necessity for ongoing policy evaluations and potential renewals to avoid exposure to liability for incidents that may arise after the policy has ended.

In contrast, a traditional occurrence policy covers claims for events that occur during the policy period, regardless of when those claims are reported. This distinction makes claims-made policies a unique and critical component in managing risk for professionals and businesses, especially those exposed to long-tail liabilities, where claims may arise years after the event.