This article is part of a series of 50 Professional Indemnity Insurance (PI) policy specifically dissects each important clause so professionals can fully understand the coverage. In this edition, we’ll discuss the fundamental differences between claims-made and occurrence-based, two key concepts in PI policies that often confuse insureds.
This article was written by Mhd. Taufik Arifin ANZIIF (snr.assoc) CIIB, an insurance broker with over 40 years of experience and currently heads L&G Insurance Broker. With his extensive experience, he will help you understand these technical differences to avoid choosing the wrong PI policy and the risk of significant future losses.
Contact L&G Insurance Broker now at 08118507773 for a free consultation before the risks haunt your business.
Definition of Claims Made Basis
In the world of Professional Indemnity (PI) insurance, the term claims-made basis is an important foundation that every professional and service-based business owner should understand. Simply put, a claims-made basis means the policy will only cover claims filed and reported during the policy period, regardless of when the actual incident occurred (as long as it does not exceed the retroactive date stated in the policy).
For example, an IT consultant might perform work in 2022, but the client discovers a problem in 2024. If the consultant purchases a new PI policy in 2023 with a retroactive date of 2021, the 2024 claim would still be covered because the claim report was submitted while the policy was still active. However, if the retroactive date is set to 2023, the claim would not be covered.
This concept requires discipline in renewing the policy without interruption (continuous coverage). Once there’s a gap in the policy period, claims arising from past employment can be denied. This is why understanding the policy details is crucial.
This is where an experienced insurance broker plays a crucial role. Brokers like L&G Insurance Broker will ensure you not only get a PI policy with the correct basis but also a retroactive date that aligns with your business needs. With over 40 years of experience, L&G can negotiate optimal coverage, avoiding the risk of claims being denied simply due to timing issues.
Definition Occurrence Basis
Unlike the claims-made basis, the occurrence basis concept in Professional Indemnity (PI) insurance focuses on the time of occurrence, not when the claim is filed. This means the policy will cover claims as long as the incident or professional error occurs during the active policy period, even if the claim is filed years later, even after the policy has expired.
For example, an architect completes a project in 2021 and has an occurrence-based PI policy in effect for that year. In 2024, the client discovers a structural defect and files a lawsuit. Although the policy is no longer active in 2024, the claim is still covered because the incident occurred in 2021, when the policy was in effect.
This occurrence-based model is considered simpler and provides certainty for the insured, as they don’t have to worry about retroactive dates or policy continuity. However, occurrence-based PI policies are generally more expensive and rarely offered widely, especially in high-risk sectors.
Another drawback is the difficulty for insurers in calculating long-term exposure, as claims can arise years after the policy expires. This has led most PI policies in Indonesia and many other countries to use a claims-made basis.
This is where a professional insurance broker like L&G Insurance Broker becomes crucial. With over 40 years of experience, L&G can clearly explain the differences between the two, help you determine the policy basis that best suits your business’s risk profile, and ensure you don’t make any mistakes when choosing coverage.
Key Differences Between Claims Made and Occurrence Basis
Understanding the difference between claims-made and occurrence basis in Professional Indemnity (PI) insurance policies is key to ensuring professionals avoid making the wrong choice when choosing coverage. Both offer protection against lawsuits resulting from professional error or negligence, but their coverage mechanisms differ significantly.
- Coverage Time
Claims Made Basis: Claims are guaranteed if submitted and reported while the policy is still active, as long as the retroactive date meets the requirements.
Occurrence Basis: Claims are covered if an event (incident) occurs while the policy is active, even if the claim is filed years later.
- Retroactive Date
Claims Made Basis: Highly dependent on retroactive dates. Without proper arrangements, claims for past work may be denied.
Occurrence Basis: Does not require a retroactive date because the main focus is on the time of the incident.
- Premium Fees
Claims Made Basis: More affordable because the insurer’s risk is easier to predict.
Occurrence Basis: Generally more expensive because claims can arise years after the policy expires.
- Administrative Complexity
Claims Made Basis: Requires continuous policy coverage without a break. If there is a gap, the risk of a claim being rejected is very high.
Occurrence Basis: Simpler because the insured does not need to worry about policy extensions or gaps.
- Popularity in the Market
Claims Made Basis: More commonly used in Indonesia and many other countries, especially for legal, medical, IT, auditor, and consulting professions.
Occurrence Basis: Rarely used in modern IP because long-term risks are difficult to predict. More commonly found in other types of insurance, such as general insurance or traditional liability insurance.
In short, the claims-made basis provides premium flexibility and is easier for insurers to manage, while the occurrence basis provides long-term certainty for the insured. Both have their own advantages and disadvantages.
Because of these complex differences, it’s important for professionals to discuss these matters with an experienced insurance broker like L&G Insurance Broker. With over 40 years of experience, L&G can explain these differences in detail, provide recommendations tailored to your business needs, and ensure you choose the right IP coverage.
Advantages and Disadvantages of Each Basis
Choosing between a claims-made basis and an occurrence basis in a Professional Indemnity (PI) insurance policy is not a simple decision. Both have advantages and disadvantages that must be considered based on the needs and characteristics of the business.
- Claims Made Basis
Advantages:
- Premiums are more affordable because risks are easier for the insurer to predict.
- Flexible in adjusting coverage with retroactive dates, so it can protect past work.
- More commonly available in the market, so there is a wider choice of products and variations.
Disadvantages:
- High reliance on policy continuity. Any gaps in renewals can result in claims being rejected.
- Retroactive dates can be a weak point if not set up properly.
- Requires in-depth understanding from the insured, because small errors in administration can have fatal consequences for claims.
- Occurrence Basis
Advantages:
- Provides long-term certainty because it focuses on the time of the incident, not when the claim is filed.
- Does not require a retroactive date or continuous extension.
- It is easier for the insured to understand because the system is simple.
Disadvantages:
- Premiums are much more expensive because the risk of claims can arise years after the policy expires.
- Rarely available in the modern PI market, so product choices are very limited.
- Insurers have difficulty calculating long-term exposure, so not all insurance companies are willing to offer it.
In conclusion, the claims-made basis is suitable for professionals in Indonesia because it is more economical and widely available. However, it requires broker guidance to avoid choosing the wrong retroactive date and to avoid losing policy continuity. Meanwhile, the occurrence basis offers a simpler sense of security, but is expensive and difficult to find in the local market.
An experienced broker like L&G Insurance Broker can help analyze your specific business needs, compare available options, and ensure the IP coverage you choose is optimal. With over 40 years of experience, L&G is the right partner to help you choose wisely.
Comparative Case Study of Claims Made vs Occurrence
To understand the real difference between claims made basis and occurrence basis in Professional Indemnity (PI) policies, let’s look at some common case illustrations in the professional world.
- IT Consultant Case (Claims Made Basis)
An IT consultant developed a security system for a retail company in 2021. A new problem was discovered in 2023, when customer data was leaked. The consultant had a claims-made policy with a retroactive date of 2020, and the policy was still active in 2023. Because the claim was filed while the policy was in effect, the insurance company covered a Rp 5 billion lawsuit. If the retroactive date had been set to 2022, the claim would have been denied even though the policy was active.
- Architect Case (Occurrence Basis)
An architect completed a residential project in 2019 with an occurrence-based PI policy. In 2022, the client discovered structural defects and sued the architect. Although the policy expired in 2019, the claim was still covered because the incident occurred while the policy was active. This provides long-term security, but the architect’s premiums are significantly higher than those paid under a claims-made policy.
- Law Firm Case (Comparison)
A law firm in Jakarta considered two options. With a claims-made basis, annual premiums are cheaper, but they must be disciplined about renewing their policies without interruption to maintain coverage. With an occurrence basis, premiums are more expensive, but the firm enjoys peace of mind because it doesn’t have to worry about policy continuity. After discussing with a broker, the firm chose a claims-made basis because it better suited its financial situation and offered security thanks to the long retroactive date.
The case study above shows that the claims-made basis is more economical and flexible, while the occurrence basis is simpler but more expensive. There’s no absolute right or wrong choice—it all depends on your needs, risks, and financial capabilities.
An experienced insurance broker like L&G Insurance Broker can help professionals objectively evaluate these options. With over 40 years of experience, L&G ensures every client chooses the right IP coverage and remains protected from the risk of potentially devastating lawsuits.
Conclusion and Recommendations
The difference between claims-made and occurrence-based insurance policies in Professional Indemnity (PI) policies is fundamental and must be understood by every professional. Claims-made emphasizes the time a claim is filed and reported, while occurrence-based insurance focuses on the time of the incident. Both have distinct characteristics, advantages, and disadvantages.
In Indonesia and most other countries, the claims-made basis is more widely used because premiums are more affordable and easier for insurance companies to control. However, this system requires the insured to be disciplined in maintaining policy continuity and understand the importance of retroactive dates. In contrast, the occurrence basis provides the certainty of long-term protection without the need for policy renewals, but it carries higher premiums and limited availability in the modern IP market.
Recommendation:
Professionals and service-based business owners should carefully consider the choice between these two bases. If you prioritize cost efficiency and product accessibility, the claims-made basis may be the right choice—provided you never let your policy lapse, even for a moment. If you prioritize long-term certainty and have a larger budget, the occurrence basis may be worth considering, although it’s a rare option.
To ensure the right decision, it’s highly recommended to work with an experienced insurance broker. L&G Insurance Broker, with over 40 years of experience, is ready to help analyze your needs, negotiate the best retroactive date, and ensure you receive the PI coverage that best suits your business risks.
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