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Is Loss Development Factor LDF Calculation Really Worth It?


Term Of The Day – Loss Development Factor

The Loss Development Factor is 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.

Calculating Loss Development Factor using calculator with pen and paper on the table
Wikimedia Commons – Steve Buissinne

Where I have seen LDFs used the most are for Workers Comp Self Insureds. The LDF is somewhat analogous to the Experience Modification Factors (E-Mod or X-Mods). LDFs are usually calculated using the actuarial Triangulation Method. I have calculated LDFs for self-insureds for up to 10 years in the future.

During self-insured presentations, a great concern comes over me when I ask for a show of hands as to which self-insured organization knows their LDF.  Many say they do not have one calculated for their company or organization.   This is a BIG MISTAKE.   Your company is operating your Self-insured Risk Management and safety without a map or GPS.

I give presentations on LDFs and E-Mods (X-Mods) often.  LDFs stretch over a five to 10-year span of time.  They have similarities to Mods.  They also differ from Mods greatly.  The inputs to a Loss Development Factor should be considered as part opinion and part calculated numbers.

We have two current customers that use software to calculate their own LDFs.  They sometimes call me to ask my opinion on the inputs to the formula and which test would be the best for their situations.  A manufacturer’s LDF likely varies from, for example, a school system.

If you are 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 LDFs, 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.


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James J Moore - Workers Comp Expert

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Management Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

  • Risk and Insurance Management Society (RIMS)
  • Entrepreneur Magazine
  • Bloomberg Business News
  • WorkCompCentral.com
  • Claims Magazine
  • Risk & Insurance Magazine
  • Insurance Journal
  • Workers Compensation.com
  • LinkedIn, Twitter, Facebook and other social media sites
  • Various trade publications


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