What Is Occurrence Insurance Also Known As?

Insurance policies serve as a financial safeguard, designed to protect individuals and businesses from unexpected losses by transferring risk to an insurer. These agreements are structured in various ways, with one fundamental distinction lying in how and when coverage is triggered for a claim. Among these structures, “occurrence insurance” stands out as a foundational type, characterized by its unique approach to covering events that take place during the policy period, irrespective of the date a claim is reported.

Defining Occurrence Insurance

Occurrence insurance provides coverage for incidents that happen during the policy’s active period, regardless of when the claim is filed. This means the insurable event, such as an injury or property damage, must occur while the policy is in force for coverage to apply. Its protection extends indefinitely into the future for events that occurred during its active term, even if the policy has since expired or been canceled.

For example, if a slip-and-fall accident happens on a business’s premises in 2023 when an occurrence policy is active, and the injured party files a lawsuit in 2025 after the policy has expired, the 2023 occurrence policy would still respond to the claim. This perpetual coverage for past events makes occurrence policies suitable for “long-tail” risks, where the consequences of an incident may not become apparent for years. Insurers often set a cap on the total coverage offered each year, with the limit resetting annually, allowing for substantial aggregate coverage over time.

The Claims-Made Counterpart

In contrast to occurrence policies, claims-made insurance operates on a different trigger mechanism. This type of policy provides coverage when a claim is first made against the insured and reported to the insurer during the active policy period. The timing of the actual incident that caused the claim is secondary to the date the claim is reported.

A key feature of claims-made policies is the “retroactive date,” which sets the earliest point an incident must have occurred to be covered. Claims arising from incidents before this date are generally not covered, even if reported during the policy period. When a claims-made policy expires or is not renewed, coverage for future claims ceases unless an “Extended Reporting Period” (ERP), also known as “tail coverage,” is purchased. This tail coverage provides a specified window during which claims can still be reported for incidents that happened while the policy was active and after the retroactive date.

Key Differences and Practical Implications

The fundamental distinction between occurrence and claims-made policies lies in their coverage triggers. An occurrence policy covers incidents that occur during the policy period, regardless of when the claim is filed. In contrast, a claims-made policy covers claims that are made and reported during the policy period, often requiring a retroactive date and the purchase of tail coverage.

This difference has practical implications for policyholders. Occurrence policies provide peace of mind regarding “long-tail” exposures because coverage for an event is tied to the policy year in which it happened, even if the claim materializes decades later. These policies can sometimes be more expensive upfront due to their open-ended nature. Claims-made policies, while often having lower initial premiums, necessitate careful management of retroactive dates and the potential need for tail coverage to avoid gaps in protection, especially when switching insurers or discontinuing coverage.

Common Applications of Occurrence Policies

Occurrence policies are widely used where claims may emerge long after an incident. General Liability (GL) insurance is an example, commonly written on an occurrence basis. This structure is suitable for GL because bodily injury or property damage can manifest years after the initial incident, such as a slip-and-fall or property damage discovered much later.

Product Liability insurance often utilizes an occurrence form. This is beneficial for manufacturers, as a defective product could cause injury or damage long after it has been sold and the policy has expired, ensuring continuous protection for past product-related incidents. While less common for pure occurrence policies, certain environmental liability insurance aspects can also use this structure for pollution events with delayed discovery, reflecting their “long-tail” nature. In contrast, professional liability (errors and omissions) and directors and officers (D&O) insurance are typically written on a claims-made basis, due to the nature of professional services where a claim might arise from an error made years prior but only becomes known and reported much later.