What E&O Extended Reporting Periods Are (ERPs) and Why They Matter for Agents

By Jonathan Decker

When life and health agents decide to make career changes to pursue new opportunities — such as transitioning to selling a different policy type or leaving the industry altogether — there are a lot of important housekeeping tasks to consider. Among the most essential is securing an extended reporting period (ERP) on their Errors and Omissions (E&O) Insurance.

Life and health agents play a valuable role in the lives of their clients by helping them enroll in quality insurance products that meet their unique needs. Due to the business’s nature, making a mistake or error while providing professional services, such as failing to disclose critical policy information or offering incorrect advice, can place clients in harmful coverage gaps. When these troubles come to light, upset clients might attempt to sue your business to recoup financial losses stemming from the incorrect coverage you endorsed.

But what happens if you’re sued after moving on to a new company or a quieter pace of life? Continue reading to learn how claims can affect you after your career moves on and how an E&O ERP can help protect the success for which you’ve worked so hard.

Small Mistakes with Big Consequences

You can have a long career as a life and health agent with thousands of happy customers and still make a costly mistake. Navigating the impact of that error can quickly get complicated if you’ve sold your book of business or retired since writing the policy without the proper protection in place beforehand.

Let’s say Dan, a career professional, knows he will retire soon but — unfortunately for him — decides to write a couple more policies before calling it quits. Maybe he was too distracted by daydreams of long summer days spent on the golf course or the time he planned on sharing with his grandchildren. Either way, Dan makes expensive errors: He somehow miscalculates their premiums, meaning they’ll pay higher rates than they should.

When Dan’s lawyer contacts him more than a year later to inform him of the alleged mistakes and impending lawsuits, he can feel a headache forming. He knows he carried E&O insurance throughout his career, a hallmark of a wise agent, but he can’t remember whether he purchased an ERP endorsement on his policy upon his retirement. Without it, he knows the litigation demands will end the relaxing days he dreamed of, as they’ll come at the cost of his personal bank account.

Understanding the ERP

Why is Dan so worried about the ERP on his E&O policy if lawsuits are a fact of life? It’s because Dan, a consummate professional, prioritized maintaining continuous coverage with his carrier. Without coverage gaps, he carefully ensured his carrier could assist with any claims. Now that he’s retired, however, he expected his ERP to see him through any issues.

An ERP, also known as tail coverage, allows more time for claims reporting after the original policy expires. If a claim stems from an incident occurring during the original coverage period, or before it expired, the policyholder will receive their full benefits. In Dan’s situation, that means valuable legal assistance, such as securing experts to assist in his defense or paying any court-ordered award amounts.

ERPs are especially valuable to professionals like life and health agents, whose mistakes might take months or years to be discovered. Here are some essential things to know about this coverage extension:

• It’s an optional endorsement – While most E&O policies now come with an ERP option, you have no obligation to purchase it; you typically need to choose to add it to your policy. Additionally, you can only buy this endorsement as an add-on to a current or expiring policy.
• It won’t lengthen your expired E&O policy – E&O tail coverage only extends the period your insurer will accept a claim after your policy expires. It won’t provide comprehensive coverage if Dan decides to cancel his retirement and return to work to fund his legal defense. Nor will it be able to assist if Dan ever went without insurance and later experienced a claim dating back to that time; in that instance, he would still experience a coverage gap.
• It only applies to claims-made policies – Most E&O policies are claims-made policies, meaning they must be reported while the policy is in place. This makes ensuring continuous coverage especially important. Letting your coverage lapse only to receive a claim stemming from that period later will prevent you from using your ERP.
• It can’t be adjusted – Some E&O policies include an automatic ERP extension, or grace period, for 20 to 60 days, according to Insurance Training Center. You can purchase longer periods, generally from one to six years, but an ERP usually can’t be extended, renewed or canceled once purchased. So, it’s important to understand your state’s statute of limitations and your risk profile to ensure you secure the proper coverage amount.

While Dan, the star of our example, secured an ERP because of his retirement, there are other reasons for tail coverage. If Dan moved to a new policy, his ERP would ensure he was protected against any claims that originated under his old policy. If he expanded his solo business by acquiring another firm, an ERP would protect him against potential claims incurred by his new partner’s pre-acquisition conduct. The same goes for mergers, where companies on both sides should secure tail coverage.

Comparing Coverage

E&O coverage is a known essential for the life and health agent seeking to protect their reputation, career and finances against claims of errors, omissions or professional negligence. Understanding the benefits of an E&O ERP after a career change only heightens the importance of choosing a comprehensive, balanced and long-term cost-effective policy for your business.

Competitor 1: Less Generous, Restrictive Options

Applies to: Life & Health Insurance Agent E&O Insurance

• Automatic one-year ERP – Agents are limited to one year of free ERP for disability, retirement or death — this increases to two years for agents based in New York. There is no automatic multi-year benefit.
• Optional three-year ERP – A three-year ERP can be purchased for 200% of the premium for shorter-term agents. Group ERP on the same terms is only available if the insurer cancels, not the sponsor.
• Unlimited ERP option – This carrier does not offer this coverage.

When most professionals plan the course of their careers, they’re usually preoccupied with how they’ll enter a new industry — not exit it. The availability of ERP endorsements on E&O policies highlights the potential long-term risks facing all life and health agents: Any business you write can come back to haunt you, no matter where you end up.

Mistakes can take time to surface in the life and health insurance industry. Any employment changes you made between the claim event and its filing, such as retirements, mergers, acquisitions, career changes or even a simple policy lapse, can seriously complicate your ability to defend yourself. By enrolling in a comprehensive E&O policy with ERP options that fit your unique needs, you can protect yourself against sudden claims.

ERP is crucial to consider when purchasing E&O coverage and should be evaluated alongside other essential variables such as price, deductibles, program options and other policy benefits.

AIP, the Association of Insurance Professionals, offers E&O insurance designed to answer the needs of Colonial Life agents and brokers. This coverage starts at only $28.75 per month, with comprehensive coverage options available. Policies are backed by an “A” rated carrier. Plus, agents who enroll enjoy access to AIP Member Benefits, including free continuing education (CE) courses.

Learn more about AIP E&O Insurance today to review your options or begin your application.

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