Enter the expiring annual premium ($) into the calculator. The calculator will estimate the tail (ERP) premium/cost (common for claims-made policies).
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Tail (ERP) Premium Estimate Formula
TP \approx EP \times M
Variables:
- TP is the estimated tail (ERP) premium/cost ($)
- EP is the expiring annual premium ($)
- M is the tail multiplier (unitless). For a quick rule-of-thumb, some use M ≈ 2, but real-world multipliers vary by carrier, line of coverage, limits, retro date, and ERP duration.
To estimate tail premium using the quick 2× rule-of-thumb, multiply the expiring annual premium by 2. This is not a universal pricing rule—actual tail quotes can be higher or lower.
How to Calculate Tail Coverage?
The following steps outline how to estimate the tail (ERP) premium/cost for a claims-made policy.
- First, determine the expiring annual premium ($).
- Next, gather the formula from above: TP ≈ EP × M (for the quick estimate, use M = 2).
- Finally, calculate the estimated tail premium.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Expiring annual premium ($) = 2000. Using the quick 2× rule-of-thumb, estimated tail premium ≈ 2000 × 2 = $4000.
FAQs about Tail Coverage
What is Tail Coverage in insurance?
Tail Coverage, also known as an Extended Reporting Period (ERP) endorsement, is a feature used with claims-made liability insurance policies that allows the insured to report claims after the policy ends for incidents that occurred while the policy was active (subject to the policy’s terms).
Why is Tail Coverage important?
Tail Coverage is important because it can protect the insured against claims that are made after a claims-made policy expires or is canceled. This is particularly relevant in professions where there might be a delay between the occurrence of an incident and the filing of a claim.
How is the cost of Tail Coverage calculated?
The cost of Tail Coverage is typically calculated as a multiple of the expiring annual premium. The exact multiplier can vary depending on the policy type, the insurer, the retroactive date, limits, underwriting, and the chosen ERP duration.
Can Tail Coverage be purchased at any time?
Tail Coverage is most commonly elected when a claims-made policy is canceled or non-renewed (often within a limited election window, such as 30–60 days, depending on the policy). Some policies offer options at renewal or include an automatic extended reporting period, but timing rules vary by insurer and contract.
