Extended reporting period (ERP)

What is an extended reporting period (ERP)?

An extended reporting period (ERP) lets you report a claim to your insurance company after the policy term has ended. However, the event in your claim must have happened within the coverage period. ERP is also known as tail coverage.

How does ERP work?

Let’s say you have a one-year professional liability insurance policy for your consulting business. During that time, you gave a client business advice. Your insurance policy expires after a year. Only then do you learn your client suffered financial losses, for which they blame you.

This is where an extended reporting period comes in. You can still file a claim with your insurance company to help cover legal costs because the incident happened when your insurance policy was still active.

You typically need to pay an additional premium for ERP to add it as a rider to your policy.

Runoff insurance vs. ERP: What’s the difference?

While runoff insurance and ERP are both designed to provide coverage for claims made after an insurance policy has expired, there are important differences:

1. Coverage period

• Runoff insurance: You can get coverage for an extended and predefined period, which can be several years. So, it’s ideal if you want long-term protection for potential claims, for example, if you plan to close your business.
• ERP: Usually covers a more limited period, often one or two years after the policy expiration date.

2. Cost

• Runoff insurance: This is typically more expensive than an ERP because it’s a separate policy with a more extended coverage period.
• ERP: ERP usually involves a lower cost because it’s an extension of your current coverage for a limited time.

When should you consider opting for an ERP?

An extended reporting period can be beneficial if you’re changing insurers or your business activities (including closing the business). ERP can give you extra coverage if you need to file a claim for something your previous insurer still covered or for past activities.

Also, if you or an employee retires, ERP can offer protection for potential future claims that stem from your or your employee’s work.

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