What element is essential for functioning of claims-made policies?

The essential element for the functioning of claims-made policies is indeed closely tied to the timing of when the claim is reported. Claims-made insurance policies require that claims be made during the policy period. This means that for coverage to apply, the claim must be reported to the insurer while the policy is still in force. It emphasizes the importance of timely reporting, as any claim made after the policy has expired typically falls outside the coverage.

This aspect is crucial because it differentiates claims-made policies from occurrence policies, where claims are covered as long as the incident occurred during the policy period, regardless of when the claim is actually reported. Therefore, understanding the reporting timeline is fundamental for policyholders to ensure they are adequately protected and aware of their obligations in regard to claim notifications.