Extended Reporting Endorsement/Tail Coverage
In a "Claims-Made" insurance policy, the insurance company will only cover claims that are both made against the insured and reported to the insurer during the policy period. This is different from an "Occurrence" policy, where claims that stem from incidents occurring during the policy period are covered, regardless of when they are reported.
Extended Reporting Endorsement (Tail Coverage)An Extended Reporting Endorsement, often called "Tail Coverage," is an add-on to a Claims-Made policy. It allows for a period of time after the policy has expired for reporting claims that occurred during the active policy period but were not reported during it. For example, if a policyholder has an active policy from January 1, 2022, to January 1, 2023, but a claim from an incident that occurred on December 15, 2022, is not filed until February 1, 2023, that claim would not be covered unless there is an Extended Reporting Endorsement in place.
Impact on Premium
Initial Costs: Extended Reporting Endorsements are usually not included in the base premium of a Claims-Made policy and are offered for an additional cost. The cost can vary but is typically a percentage of the annual premium.
Risk Management: By opting for an Extended Reporting Endorsement, the policyholder can manage the risk of late-appearing claims that would otherwise not be covered. This can be particularly useful in professions where there is a long gap between service delivery and the filing of a claim, like in healthcare or legal services.
Changing Policies or Retiring: If a policyholder switches insurance providers or retires, an Extended Reporting Endorsement ensures that they are covered for claims that arise after the termination of the policy but stem from incidents that occurred while the policy was active.
Premium Refunds: Some insurance providers may offer a pro-rated return of the Extended Reporting Endorsement premium if the policyholder obtains new insurance that provides retroactive coverage for the same claims.
How it Works in Terms of Claims
In essence, an Extended Reporting Endorsement extends the reporting window for eligible claims but does not extend the policy period itself. This means that claims resulting from incidents that happen after the policy period expires are not covered, even if they are reported during the extended reporting period.