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Professional Liability Insurance Contracts: Claims Made Versus Occurrence Policies

Author

Listed:
  • Martin Boyer

    (CEFA, HEC-Montreal)

  • Karine Gobert

    (GREDI, Faculte d'administration, Université 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.

Suggested Citation

  • Martin Boyer & Karine Gobert, 2009. "Professional Liability Insurance Contracts: Claims Made Versus Occurrence Policies," Cahiers de recherche 09-03, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    • Handle: RePEc:shr:wpaper:09-03
    as

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    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0903.pdf
    File Function: First version, 2009
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    References listed on IDEAS

    as
    1. Patricia Born & M. Martin Boyer, 2011. "Claims‐Made and Reported Policies and Insurer Profitability in Medical Malpractice," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(1), pages 139-162, March.
    2. J. David Cummins & Sharon Tennyson, 1992. "Controlling Automobile Insurance Costs," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 95-115, Spring.
    3. Harrington, Scott E. & Danzon, Patricia M. & Epstein, Andrew J., 2008. ""Crises" in medical malpractice insurance: Evidence of excessive price-cutting in the preceding soft market," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 157-169, January.
    4. Doherty, Neil A & Dionne, Georges, 1993. "Insurance with Undiversifiable Risk: Contract Structure and Organizational Form of Insurance Firms," Journal of Risk and Uncertainty, Springer, vol. 6(2), pages 187-203, April.
    5. Berger, Lawrence A & Cummins, J David & Tennyson, Sharon, 1992. "Reinsurance and the Liability Insurance Crisis," Journal of Risk and Uncertainty, Springer, vol. 5(3), pages 253-272, July.
    6. Frank A. Sloan & Lindsey M. Chepke, 2008. "Medical Malpractice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262195720, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Liability insurance; Claims-made and reported; Loss development; Income smoothing.;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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