Occurrence Policy

What is an Occurrence Policy?

An occurrence policy provides coverage based on when the underlying incident or loss event takes place, not when the claim is reported. If the occurrence falls within the policy period — that is, within the period for which premiums were paid — coverage applies regardless of when the insured notifies the insurer or when a claimant formally asserts their claim. An occurrence policy written in 2005 can generate a valid claim in 2025 if the triggering event happened during 2005, even if the insurer no longer writes that class of business and the policy expired twenty years ago.

Occurrence coverage is standard in most property and casualty lines in the UK and internationally: public liability (general liability in US terminology), employers' liability, motor third-party liability, and property insurance are typically written on occurrence bases. The occurrence trigger makes intuitive sense for these classes: a member of the public injured on business premises in 2010 should be able to claim against the policy that was in force in 2010, regardless of when they choose to pursue the claim.

The Long-Tail Problem in Occurrence Policies

The defining challenge of occurrence-based policies is the reporting tail — the potentially very long period between the policy year and the emergence of claims arising from that year. In employers' liability, asbestos-related disease claims arising from 1970s exposure continue to be reported and litigated today. This means an insurer that wrote employers' liability in 1975 must maintain reserves and remain available to respond to claims that may emerge fifty or more years after the policy year expired.

This tail risk creates substantial actuarial uncertainty. The IBNR (Incurred But Not Reported) reserve required for long-tail occurrence policies can dwarf the case reserves on currently known claims. Actuaries must model the expected future emergence of claims from historical policy years using complex development models that incorporate medical, legal, and legislative trend data. Small errors in these projections compound over long development periods, potentially producing significant reserve inadequacies that only become apparent decades later.

Occurrence vs. Claims-Made: The Practical Difference

The choice between occurrence and claims-made coverage has practical consequences for both insurers and policyholders. For policyholders, occurrence coverage is simpler to manage: once the policy period has passed and the premium paid, protection for incidents during that period is permanent, with no need to maintain continuous coverage or purchase extended reporting period endorsements. For insurers, the indefinite liability tail creates reserving complexity and capital requirements that persist long after the policy year closes.

Claims-made policies were partly developed in response to the adverse reserving experience that insurers suffered on long-tail occurrence books in the 1970s and 1980s, particularly in professional liability lines. By limiting coverage to claims reported during the policy year, claims-made coverage gives the insurer much greater certainty about the limits of its liability once a policy year closes, enabling more accurate and timely reserve releases.

Policy Retrieval Challenges

When a late-reported claim emerges on an occurrence policy from a historical year, the insurer must locate the original policy wording, verify coverage, confirm premium payment, and assess whether the occurrence falls within the policy period. This requires systematic archiving of historical policy records in formats that remain retrievable decades later. Insurers with poor historical document management face significant challenges — and potential coverage disputes — when late-reported occurrence claims emerge from portfolios written many years earlier.