What does Loss Development mean? Read on to discover the definition & meaning of the term Loss Development - to help you better understand the language used in insurance policies.
The difference between the original loss as initially reserved by an insurer and its subsequent evaluation later or at the time of its final disposal. Loss development occurs because of (1) inflation both "social inflation" and inflation in the consumer price index during the period in which losses are reported and ultimately settled and (2) time lags between the occurrence of claims and the time they are actually reported to an insurer. To account for these increases, a "loss development factor" (LDF) or multiplier is usually applied to a claim or group of claims in an effort to more accurately project the ultimate amount for which they will be closed.
We hope the you have a better understanding of the meaning of Loss Development.