What Is an Extended Reporting Period?

Understanding Extended Reporting Periods in Insurance

An Extended Reporting Period (ERP) extends certain insurance policies, allowing claims to be reported after the policy term concludes. It bridges the gap between a policy’s end and the emergence of claims related to past events, ensuring coverage for incidents that occurred during the active policy period. An ERP is often called “tail coverage” because it covers potential liabilities from prior periods.

Understanding Claims-Made Coverage

Understanding “claims-made” insurance policies is key to understanding an Extended Reporting Period. Unlike “occurrence” policies, which cover incidents regardless of when the claim is filed, claims-made policies only cover claims made against the insured and reported to the insurer within the policy period. If a claims-made policy expires, claims reported afterward for incidents during the active term are typically not covered without an ERP.

Professional liability and errors and omissions insurance are commonly written on a claims-made basis. A claim against a professional might not surface until months or even years after a service was rendered. Without an ERP, the professional could be left uninsured for such a claim.

A significant feature of claims-made policies is the “retroactive date.” This date establishes the earliest point in time from which an incident can occur to be covered by the policy. Any incident happening before this specified retroactive date is not covered, regardless of when the claim is made or reported. Maintaining continuous coverage, often with the same retroactive date, is important to avoid gaps in protection for past acts.

The Role of an Extended Reporting Period

An Extended Reporting Period (ERP) is an endorsement added to a claims-made policy. It extends the timeframe for reporting claims to the insurer for incidents that occurred while the original policy was active and after its retroactive date. This ensures a policyholder remains protected for past actions even after their regular policy term concludes.

An ERP provides a safety net for claims emerging after a policy expires, related to events during the original policy’s coverage. For example, if a business ceases operations or an individual retires, an ERP allows reporting of future claims from past work.

An ERP typically becomes relevant in several scenarios. These include the non-renewal or cancellation of a claims-made policy, switching from one insurance carrier to another, or significant business changes such as a merger, acquisition, or the sale of a business. An ERP extends only the reporting period for past incidents; it does not provide coverage for new incidents or services that occur after the original policy’s expiration date.

Obtaining and Customizing an Extended Reporting Period

An Extended Reporting Period is purchased as an endorsement to the original claims-made policy, typically as a one-time, non-refundable cost. Insurers often provide a limited “basic” ERP automatically for 30 to 60 days after a policy’s cancellation or non-renewal. Longer, “supplemental” ERPs are available for purchase beyond this basic period.

The cost of a purchased ERP is often calculated as a percentage of the last annual premium of the expiring claims-made policy. This percentage varies significantly based on the desired duration. For instance, a one-year ERP might cost approximately 75% to 150% of the last annual premium, while an unlimited duration could range from 200% to 300% or more.

Policyholders typically have various duration options for an ERP, commonly ranging from one year to six years, and in some cases, unlimited periods may be available. The choice of duration influences the cost and the extent of future reporting capability. It is advisable to consider ERP options well in advance of a policy’s expiration or cancellation, as there is often a limited timeframe, frequently 30 to 60 days, within which an ERP can be elected and purchased.