The Difference between claims made and occurrence based policies
Many people are confused about the difference between these two terms. I also often struggled to differentiate between the two once. To understand this, we have to first understand an important concept in insurance which is called latency.
Now, what’s latency?
In insurances, particularly liability insurance, a claim doesn’t happen all of a sudden. There can be an occurrence which then triggers the claim. For example, let’s say a company exports food products. There is some accidental mixing of a harmful chemical in the product. Now, the consumption of this food may not immediately result in any harm, but over a period of time there could be some illness which is traceable to the consumption of the product. This time gap between consumption of the product and eventual occurrence of injury leading to claim is called latency. In a claims made policy, the coverage for latency is maximum of 12 months or the policy period. So the occurrence, injury and reporting of the claim must happen within the policy period itself. Once the policy expires you can’t report a claim.