Given the hot M&A market for insurance agents/brokers, it is time to update our prior posts on Standalone Tail Coverage for Insurance Agents/Brokers E&O. We have discussed the need for proper Tail coverage, also called an Extended Reporting Period or ERP, for insurance agents & brokers selling their businesses (see our prior posts here & here). These concepts apply to any professional organization that is selling, shutting down or otherwise becoming inactive.
The Insurance Market
Insurance agencies are being purchased at a significant pace, and most if not all sellers need Tail coverage for 3-5 years after the sale. Many insurance agents assume that the only option is to exercise the Tail provision in their current Insurance Agents/Brokers E&O policy, and are not aware of the Standalone Tail market and the benefits it provides.
The Standalone Tail insurance market is very active for insurance agents & brokers, providing flexible terms and competitive pricing. Back in 2005, Standalone Tail was difficult to find (see our prior post here), but as of 2014 the market was significantly more robust (see our prior post here). Today a wide range of specialty insurers will provide Standalone Tail coverage. Because an underwriter can consider the situation at the time Tail is needed, there is a better understanding of the needs and exposure. The result may be more competitive pricing with customized terms for the specific needs of the insured.
Why a Tail?
When professionals reach a point where there is no continuing operation, such as the sale of a business, Tail coverage is needed to provide continued protection from prior professional liability exposures. This ongoing protection is needed to extend the coverage provided by a claims-made policy, and is typically called an Extended Reporting Period (“ERP”), Discovery Period or Tail Coverage. Most professional liability policies include a built in option for a Tail, but the terms provided are often limited, and pricing can be expensive.
A number of specialty insurers provide alternatives to these built-in ERPs, which we call “Standalone” ERPs or “Standalone” Tails. These Standalone Tail options are provided by other insurers separate from the expiring policy, can be customized for specific situations, and often are very competitively priced.
In addition to insurance agents & brokers, many other types of professional services might require a Tail for an event, including attorneys, architects & engineers, real estate organizations, investment organizations & physicians & other healthcare services.
How to Get a Tail
Obtaining Tail coverage requires updated information for the underwriter, but otherwise is straightforward for most organizations. A white paper on Standalone Tail coverage is available to help professional organizations work through the process. Please let us know if you would like a copy.
Insurance Agents/Brokers E&O is a necessary coverage, and it is particularly important that a Tail is in place to provide ongoing protection in a sale or other event. Tennant Risk Services has the expertise and markets for any type of Tail coverage, including Insurance Agents/Brokers E&O.
Tennant Risk Services is a specialty wholesale broker and underwriting manager, and delivers expertise, markets and exemplary services to our retail insurance agent clients in the placement of professional liability and specialty insurance (E&O, D&O, EPL, Cyber Risk, Specialty). We excel at hard to place accounts. Review our expectations here.
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