Understanding the distinction between a reporting year and an accident year is crucial in the insurance industry for lines of business like medical professional liability (MPL).
In general, these terms and others, like fiscal year or calendar year, refer to the grouping or organization of business data (earnings and losses) for a certain period of time for comparison and analysis. Businesses may choose a year, quarter, month, or any other established timeframe that gives them the best view of their financial picture and allows them to assess company profitability and performance.1,2
What is the significance of “accident year” and “reporting year” in MPL insurance? As noted, these terms represent a method of collecting financial data. They also reference two medical malpractice policy types: claims-made and occurrence.
Reporting Year
Claims-Made Policies
A reporting year is a 12-month period that includes the report date, or the day on which an alleged incident preceding a claim, incident report, or lawsuit was reported to an insurance company, regardless of when the incident occurred.3,
In claims-made coverage, a provider is covered against any claims reported within policy active dates (on or after the retroactive date—the first day of coverage—and before the expiration date).4 Accounting for a reporting year would compare losses reported in that 12-month period against premiums earned to determine profit, or whether premiums exceeded losses and expenses.
Accident Year
Occurrence Policies
An accident year refers to any 12-month period during which incidents and losses occurred and insurance policy premiums were earned, regardless of when those losses were reported.5
An occurrence policy covers an insured for incidents that occur within the policy active dates. Accounting for accident year July 2023 to June 2024, for example, would compare the losses that occurred within these dates to the premiums earned, to determine profit.4,5
Some confusion may arise when considering a calendar year, the period commonly recognized as January 1 through December 31 (based on the Gregorian calendar). A calendar year comprises an individual’s or business’s financial information (payments and transactions, losses and revenues) for accounting and tax filing.6
Most MPL claim payment transactions will show up later than the reporting and accident year data and will be represented in calendar year data. For example, when an MPL insurance company views financial information for calendar year 2023, they would see all policy-related transactions, premiums, and paid claims that were processed in that year, regardless of when the associated losses occurred or claims were reported. These transactions can represent multiple policy periods from previous years due to the time it would take to investigate, settle, and eventually pay the claim.
References
- Will Kenton, “Accounting Period: What It Is, How It Works, Types, and Requirements,” Investopedia, September 28, 2022, https://www.investopedia.com/terms/a/accountingperiod.asp
- “Insurance Definitions: Accident year data,” International Risk Management Institute (IRMI), accessed August 21, 2024, https://www.irmi.com/term/insurance-definitions/accident-year-data
- “Medical Professional Liability Terminology: Report Date,” ProAssurance, accessed September 6, 2024, https://proassurance.com/knowledge-center/medical-professional-liability-terminology
- “Tail Coverage: Claims-Made vs. Occurrence Coverage,” ProAssurance, accessed September 6, 2024, https://proassurance.com/tail-coverage
- Will Kenton, “Accident Year Experience: Meaning, Overview, Calculation,” Investopedia, March 26, 2022, https://www.investopedia.com/terms/a/accident-year-experience.asp
- Will Kenton, “Calendar Year Meaning vs. Fiscal Year, Pros & Cons,” Investopedia, February 11, 2022, https://www.investopedia.com/terms/c/calendaryear.asp