Claims made reporting time

[SAO123]

Hi

I am doing Sep 08 Q1 which is about MAD who provides high layer excess of loss reinsurance for product liability.
In part iv) we are asked about the claim characteristics, and one of the comments in the solution is:

"If MAD writes policies on a claims made basis this will affect the development profile of the risk, depending on the time limits for reporting".

My understanding is that any sunset clause can only apply to claims on a losses occuring basis?

If the policies are on a claims made basis is the time limit for reporting not just the end of the policy term, since once a policy has expired then no more claims can be made on it?

This seems to imply that there is a 'grace period' after the end of a policy where policyholders can still make claims? Which seems to go against the idea that exposure finishes as soon as the policy term is over.

I am confused!

Thanks

 

[marymaj86]

Hi there

I'm not sure if this is fully relevant to the question that you are doing, but I have previously come across two features relating to a claims-made basis, namely:

a) there is sometimes a "retroactive" date, whereby reported claims are only accepted as valid if they were incurred after the specified date (which, I think, is like a retrospective sunset clause); and

b) an extension option is offered on occasion, allowing the insured to continue to report claims for a fixed length of time after the end of the policy year.

Either or both of these might help to explain a "time limit for reporting claims", but other readers might have more to add.

 

[Duncan Brydon]

I think marymaj86 has answered the question well. Perhaps what’s confusing you is that claims-made policies may very occasionally require both occurrence and reporting of claim incidents to fall within the policy period. However, as marymaj86 points out, you very often have a retroactive date within a claims-made policy. This allows for coverage of incidents in the past before the inception (or renewal) date as long as they occurred after the retroactive date.

You can also sometimes choose cover for incidents that occurred at any time in the past (as long as they are reported during the policy year). This appears to be the default assumption for claims-made policies in the Core Reading.

Good luck
Duncan

 

[SAO123]

Many thanks both!

I think its probably MaryMaj's point b) which clears it up for me as I was confused over the 'reporting deadlines' rather than anything to do with occurrence dates - but many thanks for your responses.

All the best for tomorrow everyone

 

[Sherwin]

Hi

...

"If MAD writes policies on a claims made basis this will affect the development profile of the risk, depending on the time limits for reporting".

My understanding is that any sunset clause can only apply to claims on a losses occuring basis?

...

This is not called "Sunset Clause" but "Extended Reporting Period Provision". The former is used in a Loss Occurring policy and the latter is in a Claims-made policy.