What characterizes an 'open policy' in insurance?

An open policy in insurance is characterized by its coverage of unknown risks for a specified period. This type of policy does not define specific perils but rather provides coverage for a broad range of risks that may arise during the duration of the policy period. The flexibility associated with open policies allows insured parties to engage in various types of business activities or transactions without needing to specify each potential risk beforehand.

This approach is particularly useful in contexts such as marine insurance, where the potential range of risks can be vast and unpredictable. Insurers agree to cover various unspecified risks that may occur within the designated coverage period, which simplifies the underwriting process for clients who may face fluctuating or uncertain challenges. Instead of focusing on exact perils, open policies enhance adaptability and responsiveness to changing circumstances in the insured's operations.