Loss Development

Loss development is the process of tracking the actual incurred losses over time for a given claim or group of claims. It is used to compare the expected losses with the actual losses and to identify any trends or patterns.

Loss development can be used for a variety of purposes, including:

• Evaluating the performance of an insurance company or reinsurer
• Pricing insurance policies
• Setting reserves for future claims
• Identifying areas where claims management can be improved

There are two main types of loss development:

• Ultimate loss development: This is the total amount of losses that will be incurred for a given claim or group of claims. It is calculated by adding up all of the actual losses that have been incurred to date, plus any estimated future losses.
• Cumulative loss development: This is the amount of losses that have been incurred up to a given point in time. It is calculated by adding up all of the actual losses that have been incurred to date.

Loss development is a complex process, and there are a number of factors that can affect the results. These factors include:

• The type of insurance policy
• The size of the claim
• The complexity of the claim
• The time it takes to settle the claim

Loss development is an important tool for understanding the financial performance of an insurance company or reinsurer. By tracking the actual incurred losses over time, it is possible to identify any trends or patterns that may indicate a need for improvement.