The current vaping craze presents many questions for insurers, and recent impact studies point to potential serious consequences.
But with all these unknowns, how can insurers navigate vaping-related hazards safely? Understanding the potential long-tail liability of vape offers a possible window into the future, suggesting ways to manage this exposure.
What is long-tail liability?
Unlike liability claims which are filed and closed with reasonable speed, long-tail liability emerges slower and over a more extended period, sometimes decades.1 It is the liability for damages that occur long after the initial event or product release.
Consider asbestos exposure.
Claimants took years or decades to develop symptoms after working in offices or warehouses where asbestos was present. In cases like these, claims take longer than those associated with identified events or products that are more clearly defined, such as slip and fall losses.
Long-tail risk often remains unknown until gradually emerging in the future. However, with some product types or operations we can infer that long-tail liability may be more likely.
Such is the case with vape.
The long-term health effects from vape usage may take years to manifest.
Planning for an unknown future
Long-tail liability related to vape largely stems from the associated health risks. Vaping is often considered a safe alternative to traditional cigarettes. However, recent studies raise concerns about the health risks associated with vaping: respiratory problems, lung disease, and even death. These early studies signal long-tail liability health risks resulting from the continued use of vape products. You can learn more about the risk of vape in our blog post on the subject.
Currently, we lack long-term data and scientific consensus - this will come with time. For now, we are left with uncertainty about future liability exposure. This challenges insurers to accurately rate their vape risk, and getting this rate-for-risk wrong , or even recognition of the exposure, could have serious consequences.
The risks of this uncertainty loom large, given the rapid growth of the vaping industry. With millions of customers worldwide, vape shops are everywhere - unintended exposure to vape liability is likely to exist to varying degrees in most mercantile books of business. Gas stations, convenience stores, and other retail outlets all sell vaping products. If any of these businesses did not offer vaping products before, it’s likely they either do now or are considering it. Once a niche market, the vaping market is now mainstream and enormous.
The popularity of vape continues to surge; as does the magnitude of the health hazard exposure and the potential for claims against manufacturers and retailers. Consumer protections remain in catch-up mode owing to the relative infancy of the market. Products often end up in the hands – and the developing lungs - of youth. The $1.7 billion Juul legal settlement last year for targeting young people is likely a hint of what is to come.2
Until actuaries have mature data to work with, and the legal landscape is reliably fixed, profitable pricing of product liability coverage remains a murky prospect - perhaps less murky with lower limits and, possibly, limited exposure roles such as retail.
We know that long-tail vape losses are a real possibility. And, though it may seem daunting, insurance providers can take steps to manage this risk. Once an insurer identifies an insured as having vape exposure, they can take steps to manage that exposure. From pricing to coverage endorsements (ISO has filed specific endorsements to carve out this exposure) or simple avoidance, knowledge allows insurers to make effective decisions for their business.
BuildingMetrix Vape Check
Developed to give insurers foresight, BuildingMetrix Vape Check identifies and isolates vape risk; all you need to do is provide us with your book of business. WSRB subscriptions include this book review service within the state of Washington, free of charge.
[1] IRMI, https://www.irmi.com/term/insurance-definitions/long-tail-liability
[2] NPR, https://www.npr.org/2022/12/07/1141249602/juul-vaping-lawsuits-settlements-5000-cases