Long-tail liability definition
/What is a Long-Tail Liability?
A long-tail liability is an insurance claim that is not settled until well beyond when a policy has expired. These claims are usually associated with losses that are incurred but not reported during a policy period. This delay may be caused by a long court case that must be settled first, or a lengthy investigation by the insurer. Long-tail liability tends to be associated with medical malpractice claims, employment discrimination, and occupational disease claims.
An insurer that offers long-tail coverage tends to earn more investment income on its premiums, since it may be several years between when premiums are received and when claims are paid. However, the legal costs associated with these claims tend to be higher, since legal proceedings run for longer periods of time.