Lloyd's of London - Asbestosis and Unforeseen Risk

Asbestosis and Unforeseen Risk

The classic example of long-tail insurance risks are asbestosis claims under employers' liability or workers' compensation insurances. A worker at an industrial plant may have been exposed to asbestos in the 1960s, fallen ill 20 years later, and claimed compensation from his former employer in the 1990s. The employer would report a claim to the insurance company that wrote the policy in the 1960s. However because the insurer did not understand the full nature of the future risk back in the 1960s, it and its reinsurers would not have properly reserved for it. In the case of Lloyd's this resulted in the bankruptcy of thousands of individual investors who indemnified (via RITC) general liability insurance written from the 1940s to the mid 1970s for companies with exposure to asbestosis claims.