Long-tail risks are characterized by a long (or very long) period
- (from a risk point of view) between the start of the exposure and the manifestation of loss or damage resulting from the exposure;
- (from a liability point of view) between the act/behaviour that created the liability and the recognition of the liability;
Long-tail risks can emanate from many different areas and can also be different in their characteristics. Serving as examples in this policy document are product liability, employer’s liability and environmental liability (see attached descriptions).
Long-tail risks have in earlier days been handled by the business community in a structured and consistent way, based on the classical rules of liability. During the last decades we have seen increased uncertainty in how society handles long-tail risks. As an illustration of such adverse evolution, the erosion of the causality principle is creating growing uncertainty on how the rules shall be applied. This is evident in the development in legislation and legal settlements, among others, as well as insurance market developments.