What is the difference between the two methods of loss development?

The incurred method considers both paid losses and unpaid case reserves. This method assumes that claim reporting patterns and reserving practices are consistent over time.

The paid method attempts to eliminate distortions that can occur in incurred loss development methods as a result of changes in claims handling procedures or reserving adequacy. Inherent in a paid loss development technique is the assumption there is no change in claims settlement practices (timing of payments).