Occurrence vs Claims-Made Policies: Which Type Do You Have and Why It Matters

Occurrence vs Claims-Made Policies: Which Type Do You Have and Why It Matters

In 2025, the Australian Financial Complaints Authority (AFCA) reported that professional indemnity and liability disputes accounted for approximately 14% of all general insurance complaints lodged, with a significant portion stemming from policyholders who held the wrong policy structure for their risk exposure. As we move into 2026, the distinction between occurrence and claims-made policies remains one of the most misunderstood yet financially consequential decisions a business owner can make. According to Australian Prudential Regulation Authority (APRA) data from late 2025, nearly 60% of Australian SMEs with liability cover hold claims-made policies, yet fewer than one in three business owners can accurately describe the difference. This gap in understanding can cost organisations tens of thousands of dollars in uncovered claims, particularly when a policy is switched or lapses. This article provides a data-driven analysis of both policy types, their regulatory context, and practical guidance for determining which structure aligns with your business’s risk profile.

The Core Difference: When Coverage Is Triggered

The fundamental distinction between occurrence and claims-made policies lies in the trigger for coverage. An occurrence policy responds to claims arising from incidents that happened during the policy period, regardless of when the claim is actually reported. A claims-made policy, by contrast, only covers claims that are both first made against you and reported to the insurer during the active policy period.

Occurrence Policies: Coverage Tied to the Incident Date

Under an occurrence-based structure, if a customer slips and falls in your retail store in March 2026, but does not lodge a formal claim until June 2028, the policy that was in force in March 2026 will respond—provided it was an occurrence policy. This feature provides long-term certainty, as coverage for past incidents remains intact even after you have switched insurers or ceased trading. For this reason, occurrence policies are standard for most public liability and product liability risks in Australia, where claims can emerge years after an incident.

The Insurance Contracts Act 1984 (Cth) does not mandate either policy structure, but it does impose a duty of utmost good faith on both parties. In practice, this means insurers must clearly communicate the coverage trigger in your product disclosure statement (PDS). If you hold an occurrence policy, the PDS will typically state that cover applies to “incidents occurring during the period of insurance.” The premium for occurrence policies tends to be higher upfront—often 20% to 40% more than an equivalent claims-made policy—because the insurer assumes risk for an indeterminate tail of future claims.

Claims-Made Policies: Coverage Tied to the Claim Date

Claims-made policies are the dominant structure for professional indemnity, directors and officers (D&O) liability, and medical malpractice insurance in Australia. Under this model, the policy that is active when the claim is first made—not when the alleged incident occurred—is responsible for covering the loss. If you provide architectural advice in January 2026 that leads to a structural defect, but the client does not sue until March 2028, and you have switched to a different insurer in the meantime, the 2028 policy will respond—provided you have maintained continuous coverage and disclosed the potential claim.

This structure creates a powerful incentive for insurers to manage claims promptly, as the risk pool is constantly refreshed. It also allows insurers to price premiums more accurately based on current risk profiles, which is why claims-made policies are generally 15% to 30% cheaper than occurrence equivalents for comparable limits. However, this cost saving comes with a critical vulnerability: if you allow your policy to lapse, cancel it, or switch to a different insurer without purchasing tail coverage, you lose protection for all past acts that have not yet resulted in a claim.

Why the Distinction Matters for Your Business

The choice between occurrence and claims-made is not merely academic; it directly affects your financial exposure, premium stability, and ability to change insurers. Understanding the practical implications can help you avoid the most common pitfalls.

The Lapse and Switch Risk

Consider a scenario based on real AFCA data from 2024: a small IT consultancy held a claims-made professional indemnity policy for three years. In 2025, the business owner decided to switch to a lower-cost insurer without purchasing an extended reporting period (ERP) endorsement. Six months later, a client sued over a software implementation error that occurred in 2024. The new insurer denied the claim because the incident predated its policy period, and the previous insurer denied it because the claim was not reported during its policy term. The business was left with a $120,000 legal bill and a $45,000 settlement, which it had to pay out of pocket. This case illustrates the “gap” that can open when switching claims-made policies without proper tail coverage.

In contrast, occurrence policies eliminate this gap entirely. If you switch insurers, the previous occurrence policy remains responsible for incidents that happened during its term, even if the claim is reported years later. This makes occurrence policies more attractive for businesses with long-tail risks—such as construction, manufacturing, or healthcare—where claims can emerge a decade or more after the incident.

Retroactive Dates and Continuous Coverage

Most claims-made policies include a retroactive date, which is the earliest date on which an incident can have occurred and still be covered under the policy. If your retroactive date is 1 January 2020, then any claim arising from an incident before that date is excluded, even if the claim is made during the policy period. When you switch insurers, the new policy will typically set a new retroactive date equal to the inception date of the new policy, unless you negotiate prior acts coverage. This means any claim arising from work done before the switch may fall into a coverage gap.

To maintain continuous protection, businesses with claims-made policies should ensure they purchase prior acts coverage when switching insurers, or buy an ERP (also called tail coverage) from the previous insurer. APRA data from 2025 indicates that approximately 12% of Australian SMEs with claims-made policies experienced a coverage gap in the previous three years, often due to failure to understand retroactive dates.

Regulatory and Legislative Context in Australia

Australian insurance law provides a framework that governs both policy types, but it does not prescribe which structure you must use. Instead, the regulatory environment focuses on disclosure, fairness, and dispute resolution.

Insurance Contracts Act 1984 (Cth)

The Insurance Contracts Act 1984 applies to all general insurance policies issued in Australia, including both occurrence and claims-made structures. Key provisions relevant to this distinction include:

• Section 13: Imposes a duty of utmost good faith, requiring insurers to act fairly and reasonably in handling claims. This provision has been cited in AFCA determinations where insurers attempted to deny claims based on technical interpretations of the claims-made trigger without clear communication in the PDS.

• Section 21: Requires you to disclose every matter that you know, or a reasonable person in the circumstances could be expected to know, is relevant to the insurer’s decision to accept the risk. For claims-made policies, this includes any circumstances that could give rise to a claim, even if no formal demand has been made.

• Section 40(3): Allows you to treat a policy as void if the insurer fails to clearly explain the coverage trigger and your obligations. While rarely used, this provision underscores the importance of clear communication.

State-Specific Regulations

While the Insurance Contracts Act is federal, state and territory laws can affect how liability claims are handled. For example:

• New South Wales has the Civil Liability Act 2002, which imposes proportionate liability for professional negligence. This can affect the quantum of claims under both policy types, but it is particularly relevant for claims-made policies where multiple defendants may be joined.

• Victoria and Queensland have similar proportionate liability regimes under the Wrongs Act 1958 and Civil Liability Act 2003, respectively.

• Western Australia and South Australia have not adopted proportionate liability for professional negligence, meaning joint and several liability applies. This can increase the exposure for defendants and, by extension, the importance of having the correct policy structure.

AFCA Jurisdiction

The Australian Financial Complaints Authority (AFCA) handles disputes between policyholders and insurers. In 2024-2025, AFCA received over 1,200 complaints related to professional indemnity and public liability, with approximately 18% involving disputes over whether a claim was properly notified under a claims-made policy. AFCA has consistently held that insurers must clearly communicate the claims-made trigger and the consequences of late notification in their PDS and renewal documents. Failure to do so can result in the insurer being required to cover a claim even if notification was technically late.

How to Determine Which Policy Type You Have

If you are unsure whether your current policy is occurrence or claims-made, there are several ways to verify this information.

Review Your Product Disclosure Statement (PDS)

The PDS is your primary source of information. Look for the section titled “When We Will Pay” or “Coverage Trigger.” Occurrence policies will state that cover applies to “incidents that occur during the period of insurance.” Claims-made policies will state that cover applies to “claims first made against you and notified to us during the period of insurance.”

Check Your Schedule Page

Your policy schedule or certificate of insurance typically includes a line indicating the policy type. If you see a “retroactive date” listed, you almost certainly have a claims-made policy. If no retroactive date appears, you may have an occurrence policy, though some claims-made policies also omit this field.

Ask Your Broker or Insurer

If you purchased through a broker or an online comparison platform like BizCover, you can request a policy summary that explicitly states the coverage trigger. Brokers are required under the Corporations Act 2001 to provide clear advice on policy features.

Look at Premium Trends

Occurrence policies typically have higher premiums but remain stable over time, as the insurer is pricing for a fixed risk period. Claims-made policies often show annual premium increases of 5% to 15% as the insurer accounts for the growing tail of potential claims from prior years. If your premium has been rising steadily without changes to your business operations, you likely hold a claims-made policy.

Choosing the Right Structure for Your Risk Profile

The decision between occurrence and claims-made should be based on your industry, the nature of your services, your claims history, and your long-term business plans.

When Occurrence Policies Are Preferable

• Product liability and public liability: These risks often have long tails, with claims emerging years after exposure. Occurrence policies provide the certainty that past incidents remain covered.

• Manufacturing and construction: Defects in products or structures may not manifest for 10 years or more. Occurrence coverage ensures that the policy in place at the time of manufacture or construction responds.

• Businesses with indefinite operations: If you expect to operate for decades, occurrence policies avoid the need to manage retroactive dates and tail coverage.

When Claims-Made Policies Are Preferable

• Professional services: Accountants, lawyers, architects, and consultants typically use claims-made policies because the risk of a claim is directly tied to current client relationships and current work. Premiums can be adjusted annually based on changes in practice.

• Short-term projects: If you are taking on a single project or a limited engagement, a claims-made policy with a retroactive date matching the project start date can be cost-effective.

• Businesses with limited claims history: Claims-made policies are easier to underwrite for new or small businesses, as the insurer only bears risk for the current policy period.

The Role of Tail Coverage

If you hold a claims-made policy and plan to retire, sell your business, or switch to an occurrence policy, you should purchase an extended reporting period (ERP) endorsement. This extends the time during which you can report claims arising from past incidents. ERPs are typically available for 1, 3, 5, or 10 years, with premiums ranging from 100% to 200% of the expiring annual premium for a full tail. APRA data from 2025 indicates that only 35% of Australian businesses that switched from claims-made to occurrence policies purchased tail coverage, leaving 65% exposed to potential gaps.

Frequently Asked Questions

How can I tell if my current policy is occurrence or claims-made?

Review your product disclosure statement (PDS) for the coverage trigger wording. If it says “incidents that occur during the period of insurance,” you have an occurrence policy. If it says “claims first made and notified during the period of insurance,” you have a claims-made policy. Your schedule may also list a retroactive date, which is a strong indicator of a claims-made structure.

What happens if I switch insurers while holding a claims-made policy?

If you switch insurers without purchasing an extended reporting period (ERP) endorsement from your previous insurer, you lose coverage for any claims arising from incidents that occurred during the previous policy period but have not yet been reported. The new insurer’s policy will typically exclude those incidents unless you negotiate prior acts coverage.

Are occurrence policies always more expensive than claims-made policies?

Generally, yes. Occurrence policies carry a premium loading of 20% to 40% because the insurer assumes risk for an indefinite tail of future claims. However, claims-made policies often have annual premium increases of 5% to 15% as the risk pool matures, which can narrow the gap over time.

Does the Insurance Contracts Act 1984 favour one policy type?

No, the Act is neutral. It applies equally to both structures, but it imposes a duty of utmost good faith that requires insurers to clearly communicate the coverage trigger. If an insurer fails to explain the claims-made trigger adequately, AFCA may require them to cover a late-notified claim.

Can I switch from a claims-made policy to an occurrence policy mid-term?

Yes, but you should purchase an ERP from the claims-made insurer before cancelling the policy. Otherwise, you will have a gap for any incidents that occurred during the claims-made policy period but are not yet reported. The occurrence policy will only cover incidents that occur after its inception date.

What is a retroactive date, and why does it matter?

A retroactive date is the earliest date on which an incident can have occurred and still be covered under a claims-made policy. If your retroactive date is 1 January 2023, any claim arising from an incident before that date is excluded. When you switch insurers, the new policy typically sets a new retroactive date, creating a potential gap unless you negotiate prior acts coverage.

How common are disputes over claims-made policies in Australia?

AFCA reported that approximately 18% of professional indemnity and liability complaints in 2024-2025 involved disputes over notification timing under claims-made policies. These disputes often arise when business owners misunderstand the notification requirement or fail to report circumstances that could give rise to a claim.

Should I use an online comparison platform to check my policy type?

Platforms like BizCover allow you to compare policies from multiple insurers, and their quoting process typically asks whether you need occurrence or claims-made cover. However, you should always review the PDS and schedule to confirm the policy type before purchasing. Online platforms can help you identify options, but the final responsibility for understanding your coverage rests with you.