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Loss Development Factor – Do I Need One – How Do I Get One


Loss Development Factor Critical For Self Insurance

Do I need Loss Development Factor? Loss Development Factors (LDFs) are one of the under-the-radar parts of the Workers Compensation system.   This was a question received last week by a reader that found the blog on Google.

Picture of Loss Development Factor Business Infographic

LDFs can be thought of very generally as the Experience Modification Factor (E-Mods) for self insureds.   The Ultimate Claims Value (Ultimate Loss)  is a very important term that distinguishes self insured analysis from a regular WC policy.

E-Mods (also referred to as X-Mods) are limited in scope to a maximum of almost five years in the past in certain situations.   LDFs cover up to 10 years as the risk of being a self insured is your company or organization will be responsible for paying the full value of the claim.

There are many companies, including ours, that can calculate LDFs for you.  In fact, you can calculate it yourself if you have the right software.  The caveat, as any actuary or claims statistician will tell you is the concern about accurate inputs into the LDF formula.

The old saying about GIGO (garbage in- garbage out) applies here to the hilt.   Usually, there may be some type of statistical “smoothing”  such as lessening the impact of one or more outliers that can make the LDF become somewhat inaccurate.

Woman Employee Loss Development Factor Customer Paying

The bottom line is – as a self insured- how do you budget for claims presently?  If you have a method that works, then you are ahead of the curve.   However, LDFs will usually be the most accurate way to assess your present and future WC needs.

It may be good to obtain one to see if your projections agree with the calculated ultimate claims value.  Are you looking for 5+ years into the future?  If not, an LDF may assist you with long-term budgeting.

Related: Is Loss Development Factor LDF Calculation Really Worth It?

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Reinsurance/Excess Insurance Market Hardens

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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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