Definition of Extended Reporting Period in Business Insurance

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Extended Reporting Period

Typically, an insured party can only make policy claims while they pay premiums. This ends once the policyholder cancels their plan. However, the situation is different with a business package. Here, owners can buy insurance to cover claims introduced after a policy ends.

Extended Reporting Period

This endorsement is known as extended reporting period (ERP) insurance. It’s a feature that’s available for claims-made policies within the professional liability environment. It allows a former policyholder to be covered if someone files a claim after the fact. In the industry, this form of insurance is also known as tail coverage.

Professional Liability

Professional liability insurance is different from a policy that covers damage to commercial property. Instead, it offers liability coverage to a business that provides professional advice to a customer. This might be a lawyer, doctor, or broker.

Should their client believe the information they were given was negligent or resulted in damages, they can file a claim against the professional. In some cases, this won't happen until weeks or months after the advice was provided. If the professional lacks protection, they’ll have to pay reparations and legal fees out of pocket.

How ERP Works

An ERP endorsement would take care of the above fees even after the policyholder stopped their initial coverage. There are currently two forms of extended reporting period insurance:

  • A basic version of ERP normally covers a period between 30 and 60 days after a policy cancelation. This tends to be a free endorsement for the insured.

  • A supplemental extended reporting period can last anywhere from one to five years. The policyholder would need to pay extra to get this endorsement. Usually, a professional would require this type of ERP coverage if the advice they provided was connected to long-term treatments or investments.

Cost

The cost of a supplemental ERP depends on the number of professionals covered. Furthermore, it could reflect the number of claims the individual or organization had while it was covered by the insurer.

Claims-Based Versus Occurrence-Based

As mentioned, ERP is only utilized within a claims-based professional liability policy. It’s not available within an occurrence-based program. The reason is a former policyholder is covered for the latter if the situation took place while they were still insured.