Thursday, July 3, 2008

The Extended Reporting Period, or -- Tail Trials and Tribulations (7/3/08 Knowledge Knugget)

Most claims-made policies have an extended reporting period (ERP or "tail") provision. This provision allows a pre-set period of time in which an insured can report claims made after the expiration of a policy.

Although the extended reporting provision is a very standard offering in claims-made policies -- even required by law on admitted paper in most jurisdictions -- it is anything but standardized.

If an agent reviews anything about an ERP while evaluating terms, he or she will generally look at the pricing compared to competing terms. i.e., does a 12 month ERP cost 100% of the expiring premium, or 150%, or less.

The cost of an ERP should be the least of the agent's worries. Most anything that is undesireable about an ERP will not be discovered until after it becomes an issue.

One example of this is whether an ERP is offered on a bilateral or unilateral basis. A bilateral tail can be triggered by either the insured or the carrier nonrenewing or cancelling the policy. A unilateral tail can only be triggered if the carrier cancels or nonrenews the policy.

Next week, we'll talk about how this difference can cause unexpected problems.

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