Loss Development
Candlefocus EditorLoss development factors—or LD factors—are mainly used by insurers to adjust claims to their projected final levels. These factors can be either positive or negative, and are calculated over time to give an accurate view of the expected claims payments. Positive LD factors indicate an increase in claims payments, while negative LD factors indicate a decrease.
Claim processing has a large impact on the expected final payment amount. A long processing time can lead to more payments of costs associated with the claim, while shorter processing times, such as those common with online claims, can result in a quicker and more cost-efficient claims process. This emphasis on claim processing has led to a great deal of focus on technological advances, including greater automation, digital records and payment systems, customer portals and more.
On the other hand, some claim developments are unforeseeable and unavoidable. These types of losses can create additional costs for an insurer, as it may take more time and resources to address these types of claims. As such, insurance companies need to pay close attention to the claims development process, in order to identify and monitor losses and make appropriate adjustments.
In summary, loss development is an important concept for insurance companies to understand, as it is the difference between the initial and final claims costs. Insurance companies must use loss development factors to adjust claims to the expected final levels and must have the right technological and operational processes in place to identify and address losses in a timely and cost-efficient manner. Ultimately this will help the insurer to better manage risk, ensure customer satisfaction and successfully meet their obligations.