Workers Comp Self Insureds Have an LDF
The LDF (Los Development Factor) equates to the E-Mod for self insureds. I have posted a few times in the past on Self Insureds thinking they are out of the Workers Comp E-Mod system. Actually, nothing could be further from the truth.
I have heard this during our presentations and at ,that Self Insureds are really not in the Workers Compensation system. I used to think companies or governmental entities did not know Loss Development Factors. Lately, I have come to the somewhat scary conclusion Self Insureds are not being provided with them.
If your company or governmental entity has not been provided with one, then you should obtain one immediately. Operating a self insured program without a LDF is like trying to run a budget by using a pencil and paper. Your company is operating in the dark.
Where does one obtain this elusive statistic? Your actuary should be able to provide you with one or you can use software to project your factor. There is one caveat to using software. Often, the claims data cannot be just plugged in without a few or many adjustments. J&L does do LDF’s for our Self Insured clients on request. However, we have more of a claims angle on the LDF’s.
It is calculated using the triangulation method. I have been debating with actuaries for many years that other statistics such as Regression, etc. should also factor in to the LDF. The official definition for a LDF: element used to adjust losses to reflect the Incurred But Not Reported (IBNR) under the retrospective method of rating.
My own definition is – a forecast of the future budgeted values for the life of a claim extending up to ten years in the future.
The bottom line is that if you are Self Insured, make sure you have a LDF handy when you are reviewing your Workers Comp budget for senior level management and as a guide to how much liquidity is required by your Workers Comp program.
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