So you are considering canceling your Claims-Made Policy? Here are a few things to know before doing it that will save you a lot of frustration in the end.
What is a Claims-Made Policy?
First off, nearly all liability policies fall into one of two categories: claims-made or occurrence. What does it mean when a policy is written on a Claims-Made and Reported form?
Investopedia says, “A claims-made policy refers to an insurance policy that provides coverage when a claim is made against it, regardless of when the claim event occurred. A claims-made policy is a popular option for when there is a delay between when events occur and when claimants file claims. However, the policy only covers claims made while the policy is active.”
It means that once coverage is terminated, so is your ability to report claims for incidents that may be currently unknown, but that present themselves as litigation or claims after cancellation.
In the hypothetical sense, imagine if a breach happened today, but was discovered four months down the road. You don’t have to look far to see examples like Citrix and Capital One. Data breaches are on the rise and are notoriously costly and damaging. IBM Security recently announced the results of a global study examining the financial impact of data breaches, revealing that these incidents cost companies studied $3.86 million per breach on average, and that compromised employee accounts were the most expensive root cause. Read more about it here.
We have a helpful article on How to Create a Data Breach Plan if you would like to learn more about how you can protect your company. If you have a Data Breach Plan in place, it can provide a lot of peace of mind.
Extending Reporting Period
Back to our hypothetical story. Let’s imagine your company is being acquired and you have had a breach, yet you don’t discover it until six months later, this would be well after the coverage is canceled. An “Extended Reporting Period” (sometimes called ERP or Tail) is the only way you would be able to report the claim.
Talk to your broker
Talking with your broker can help you with a few things regarding cancelling a claims-made insurance policy. First, ask about purchasing a longer reporting period for claims, which take time to develop. Second, your broker can walk you through pricing. Third, make sure that they customize everything to fit your situation and company.
In conclusion, no matter the size of your company, the unexpected can come at any time. A good insurance broker can help you determine what path and policies will protect you best. If you would like to contact Diversified Insurance Group, go here.