Professional Liability Insurance Contracts: Claims Made Versus Occurrence Policies

M. Martin Boyer () and Karine Gobert

Cahiers de recherche from Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke

Abstract: One of the major contract innovation in liability insurance during the liability crisis of the early 1980s was the introduction of claims-made and reported insurance contracts. Typical insurance contracts are based on loss occurrence (i.e., occurrence-based contracts), which means that a loss incurred in a given year is covered by the insurance contract for that year, no matter when the claims is actually reported. In a claims-made contract, losses are covered in the year in which they are reported. The major difference between the two types of contract is thus that occurrence contracts are forward looking whereas claimsmade contracts are retrospective. The goal of this paper is to analyze the efficiency of both forms of insurance contract and the reasons why policyholders would prefer one contract over the other.

Keywords: Liability insurance; Claims-made and reported; Loss development; Income smoothing. (search for similar items in EconPapers)
JEL-codes: G22 D86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias
Date: 2009
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Persistent link: http://EconPapers.repec.org/RePEc:shr:wpaper:09-03

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