What are loss development factors?

The ultimate cost of incurred claims is usually not known until several years after the close of that period. Therefore, loss development factors are used to project the additional cost expected on claims associated with each loss period.

These factors quantify the late developing aspects of certain losses, such as claims involving medical complications not recognized in the early stages of treatment or verdict values for litigated claims which are different than the amount which was reserved to pay the claims.

They also account for losses that occurred during the policy period but are not reported until a later date, commonly referred to as incurred but not reported losses (IBNRs).