What is defined as long-tail insurance?

Long-tail insurance refers to insurance claims that may take a longer time to settle. This type of insurance generally involves liabilities or claims that arise from events which may not manifest as claims until many years later. For instance, certain types of liability insurance, such as those covering professional indemnity or environmental pollution, can lead to claims being filed years post the occurrence of the insured event. The "long-tail" aspect indicates that the insurer may need to hold reserves for these claims for an extended period before they are settled, which can significantly impact the insurer's financial exposure and reserve management strategies.

In contrast, claims that are settled quickly imply short-tail insurance, where claims are made and resolved in a relatively short time frame, which does not fit the definition of long-tail insurance. Exclusive coverage of short-term events does not encompass long-tail insurance, as it fundamentally involves long-term liabilities. Lastly, while premiums may vary within different types of insurance, low premiums do not define long-tail insurance and can apply to both short and long-tail occurrences.