What’s the Difference? Long-Tail vs. Short-Tail

Discovery periods and statutes of limitations heavily impact the nature of property/casualty insurance products

Some Definitions | Long-tail insurance business involves claims that may be made long after the end of the insured period. These claims typically involve a claim period that is several years long—resulting in high amounts of incurred but not reported claims.1

Malpractice claims are a common example of long-tail insurance business, but other examples may include employment discrimination, certain cases of child abuse, and similar claims that require a lengthy settlement process. 2

Meanwhile, short-tail insurance typically involves claims that are resolved relatively close to the exposure or occurrence that triggered the coverage. Common examples of short-tail insurance business include health or auto coverage.1

While statutes of limitations vary by state—and the circumstances surrounding a claim will vary—a general guideline is that long-tail insurance business takes over two to five years for a claim to be settled, while short-tail insurance claims can often be settled in less than two to five years.1

How Long-Tail Business Affects Cash Flow

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Sources

1. Society of Actuaries. “Glossary”

2. Investopedia. “Long-Tail Liability: What it is, How it Works, Examples”