This article is part 9 of a series of 50 policy reviews Professional Indemnity Insurance (PI) is designed to help you understand the details of each important clause in a PI policy. This time, we’ll discuss the Extended Reporting Period (ERP)—a crucial, often overlooked feature that can save businesses from claims that arise after the policy expires.
This article was written by Mhd. Taufik Arifin ANZIIF (snr.assoc) CIIB, an insurance broker with over 40 years of experience and CEO of L&G Insurance Broker, who is ready to help you get the best IP protection in Indonesia.
What is Extended Reporting Period (ERP)?
Professional Indemnity (PI) policies operate on a claims-made basis, meaning claims are only covered if reported during the policy’s active period. The problem is, lawsuits often arise after the policy has expired. This presents a significant risk gap for professionals.
To cover this gap, PI policies typically offer an Extended Reporting Period (ERP), also known as tail coverage. ERP is an additional period after the policy expires, during which you can still report claims for work performed during the policy’s active period.
Simple Example
For example, a consultant has a PI policy valid from January 1, 2023, to December 31, 2023. A new client claim is submitted in February 2024. Without an ERP, this claim is automatically rejected because it has expired. However, if the policy is equipped with a 6–12-month ERP, the claim can still be submitted and covered.
The Importance of ERP
ERP is especially important for professionals who:
- Temporarily stop practicing or retire, but still risk being sued for old work.
- Changing insurance companies, so it takes a transition period for claims that may be late in coming in.
- Want to ensure your reputation and finances remain secure even after your primary policy expires.
The Role of Insurance Brokers in ERP
Unfortunately, not all PI policies automatically provide adequate ERP coverage. Some only offer additional coverage at a premium. This is where L&G Insurance Brokers play a role in ensuring clients receive the ERP they need, eliminating any potential costly claims gaps.
In short, ERP is the ultimate “safety net” for professionals, and an experienced broker is the one who can ensure this net is properly installed.
Types of Extended Reporting Period (ERP)
In Professional Indemnity (PI) insurance, Extended Reporting Period (ERP) clauses can vary depending on the insurance company and the negotiations. Understanding the types of ERPs is crucial to avoid miscalculations when the policy expires. Generally, there are two main forms of ERPs:
- Automatic ERP
Automatic ERP is usually provided free of charge after the policy expires. It has a limited duration, typically 30 to 60 days, and only applies to claims reported immediately after the primary policy period ends. It serves more as a “grace period” to give the insured a brief opportunity to report claims that may have just been discovered. However, this time is often insufficient for professions with long-term lawsuit risks, such as architects or doctors.
- Optional ERP (Tail Coverage)
Optional ERP offers much greater flexibility. The reporting period can be extended to 6 months, 1 year, 3 years, or even a lifetime, depending on the agreement. However, this facility usually incurs an additional premium. Although it requires a fee, optional ERP is essential for those who wish to retire, close their business, or switch to another insurance company. With optional ERP, late claims can still be submitted, as long as the work was performed while the policy was still active.
The Role of Brokers in Determining ERP
Many professionals don’t realize they can negotiate ERP. Without a thorough understanding, they rely solely on short-term automated ERP, even though the risks can last for years. Brokers like L&G Insurance Broker ensure clients receive an ERP that meets their needs, both in terms of duration and cost.
In short, choosing the right type of ERP can be a determining factor in whether your claim is accepted or rejected in the future.
Extended Reporting Period (ERP) Case Study
To understand how cruciallyExtended Reporting Period (ERP) in Professional Indemnity (PI) policies, let’s look at some real-life cases that demonstrate the vital role of this clause in protecting professionals.
Case 1: Retired Specialist Doctor
A Jakarta-based surgeon decided to retire at the end of 2022. His PI policy expired at the same time as his practice. However, in 2023, a long-time patient sued him for alleged malpractice related to a surgery performed in 2021, demanding Rp 7 billion in damages. Fortunately, L&G Insurance Broker had previously assisted the doctor in adding an optional ERP policy for three years. Claims filed after the policy expired were still covered, allowing the claim to be settled without devastating the doctor’s personal finances.
Case 2: A Consulting Firm Switching Insurance Companies
An engineering consulting firm in Surabaya switched insurance companies in 2022 to obtain more competitive premiums. However, in 2023, they were sued for a project completed in 2021. The new policy did not cover the old work because the retroactive date only began in 2022. Fortunately, their broker arranged an optional 12-month ERP policy on the old policy. As a result, the claim from the 2021 project was still covered by the old insurance, and the consulting firm avoided a potential loss of Rp 10 billion.
Case 3: Negligent Independent Auditor
An independent auditor was sued by a client in 2024 regarding the 2022 financial statements, which were deemed negligent in detecting fraud. The problem was that the auditor relied solely on a 30-day automatic ERP from an old policy that expired on December 31, 2023. Because the claim was filed more than three months after the policy expired, it was denied. The auditor was left to bear the substantial financial burden alone. This case serves as a painful lesson in the limited scope of automatic ERP and the need for a more extensive optional ERP.
Lessons from the ERP Case
From the three cases above, it is clear that:
- ERP is a lifesaver when it comes to late claims.
- Automatic ERP is often inadequate for professions with long-term risks.
- Optional ERP is indeed paid, but the benefits far outweigh the risk of losing billions of rupiah.
Experienced brokers like L&G Insurance Broker are able to design the right ERP solution according to client circumstances, including retirement, changing insurance companies, or business termination.
Duties and Responsibilities of an Insurance Broker
In the world of insurance, particularly Professional Indemnity (PI), the role of brokers is vital. Insurance brokers are not simply intermediaries, but professional advisors who work on behalf of the client, not the insurance company.
Main Duties of Brokers:
- Risk Analysis – Brokers help identify potential lawsuits that could destroy a client’s business.
- Drafting a Policy – Because PI policies are so complex, brokers are responsible for ensuring that clauses such as retroactive dates, limits of liability, deductibles, exclusions, and ERP truly meet your needs.
- Negotiations with Insurance – Brokers represent clients in pressuring insurance companies to provide competitive terms and premiums.
- Claims Assistance – When a claim occurs, the broker helps prepare documents, build arguments, and fights for the claim to be paid fairly.
- Client Education – Brokers are required to explain every detail of the policy so that clients fully understand the protection they have.
Why Choose L&G Insurance Broker?
As a broker with over 40 years of experience, L&G Insurance Broker has assisted various professionals in Indonesia, including doctors, architects, lawyers, auditors, and engineering consultants. L&G not only understands international PI policy standards but is also skilled at adapting them to local regulations.
With L&G, you don’t just buy a policy; you also get comprehensive protection, claim certainty, and peace of mind to focus on your business. That’s why many large companies and professionals entrust their IP insurance to L&G Insurance Broker.
Conclusion
An ERP isn’t just a small add-on to a PI policy; it’s a crucial factor in the success of a claim. Without an ERP, many legitimate claims are rejected simply because they’re reported too late. With the right broker’s guidance, an ERP can be designed to truly protect you well into the future, even after your primary policy expires.
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HOTLINE L&G 24 JAM: 0811-8507-773 (CALL – WHATSAPP – SMS)
Website: lngrisk.co.id
Email: halo@lngrisk.co.id
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