The Loss Development Factor also known as LDF is an element used to adjust losses to reflect the Incurred But Not Reported losses (IBNR) under the retrospective method of rating.
Where I have seen LDF’s used the most are for Workers Comp Self Insureds. The LDF is somewhat analogous to the Experience Modification Factors (E-Mod or X-Mods). LDF’s are usually calculated using the actuarial Triangulation Method. I have calculated LDF’s for self insureds for up to 10 years in the future.
During self insured presentations, great concern comes over me when I ask for a show of hands as to which self insured organization know their LDF. Many say they do not have one calculated for their company or organization. This is a BIG MISTAKE.
If you are a self-insured and do not have an LDF, it is best to have one for future forecasting of the IBNR and existing claims. There are software packages that will calculate the LDF’s, but the info to be input may need to be adjusted to your specific Workers Comp situation. One size does not fit all with Loss Development Factors.
Article provided by James J Moore, AIC, MBA, ChFC, ARM. All articles are original content. Check out the full website at www.cutcompcosts.com.