[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Long Tail Insurance** ## Definition ==Long Tail Insurance== refers to lines of business where claims take an extended period to be reported and settled, often many years after the loss occurs. ## Characteristics ### Extended Development - Claims reported years after occurrence - Settlement takes many years - High IBNR as percentage of ultimate - Significant reserve uncertainty ### Typical Lines - **Workers Compensation** - Medical treatment continues for years - **General Liability** - Legal processes are lengthy - **Medical Malpractice** - Discovery and litigation delays - **Environmental Liability** - Damage emerges slowly - **Professional Liability** - Claims may surface years later ## Implications ### Reserving - Large IBNR reserves needed - Long development periods (10+ years) - Significant tail factors - Higher reserve uncertainty ### Ratemaking - Need for long experience periods - Trending more critical - Rate adequacy harder to assess quickly - Regulatory lag issues ## Example Development ``` Workers Compensation Claim: Accident: Year 1 First report: Year 2 Initial treatment: Years 2-3 Surgery needed: Year 4 Permanent disability claim: Year 5 Settlement negotiation: Years 6-7 Final settlement: Year 8 Total development: 8 years ``` ## Related Concepts - [[Short Tail Insurance#Definition]] - [[IBNR Reserves#Definition]] - [[Tail Factor#Definition]] - [[Development Factor#Definition]] ## References - Friedland, Chapter 1 - Werner & Modlin, Chapter 1