Glossary

Loss assessment is a property owner's share of a loss to property owned in common by all members of a property owners association. Homeowners policies and condominium unit owners policies typically provide a small amount of coverage for such assessments, with additional amounts available by endorsement for an additional premium.

Loss carryforward is a provision in the income tax code that allows a taxpayer to spread a loss over more than 1 tax year.

The loss constant is a flat amount added to the premium of a workers compensation policy (after experience rating, if applicable) on accounts with premiums of less than $500. It is designed to offset worse-than-average loss experience of the smaller insureds.

Loss control is a risk management technique that seeks to reduce the possibility that a loss will occur and/or reduce the severity of those that do occur. Driver training programs are loss control programs that seek to reduce the likelihood of accidents occurring. Sprinkler systems are loss control devices that reduce the severity of loss by fire.

A loss control report is often ordered on mid- and large-size commercial accounts. A loss control specialist employed by the insurer typically completes this report by physically inspecting the building (e.g., restaurant, factory, store), the operations to be insured, or both.

A loss conversion factor (LCF) is used in the retrospective rating formula that provides a charge to cover unallocated claims and the cost of the insurer's claim services. Since the charge is developed as part of the formula, the amount the insured will pay for unallocated loss expenses is a function of losses. The loss conversion factor and the basic premium factor are inversely related to each other; increasing one decreases the other.

Loss costs are the actual or expected cost to an insurer of indemnity payments and allocated loss adjustment expenses (ALAEs). Loss costs do not include overhead costs or profit loadings. Historical loss costs reflect only the costs and ALAEs associated with past claims. Prospective loss costs are estimates of future loss costs, which are derived by trending and developing historical loss costs. Rating organizations such as Insurance Services Office, Inc. (ISO), (auto liability and general liability), and National Council on Compensation Insurance (NCCI) (workers compensation) develop and publish loss costs. Insurers add their own expense and profit loadings to these loss costs to develop rates. Many insurers will file their own rates or file deviations of the published rates with the states in which they write business.

Loss damage waiver (LDW) is an agreement with an auto rental company in which the renter is released from liability for physical damage to the vehicle in exchange for a fee, subject to the terms of the rental agreement or a state statute if one exists. It is not insurance but a contractual obligation subject to many restrictions. In some contracts, the renter may be able to choose either a full damage waiver or one that holds the renter responsible for damage only over a certain specified amount, sort of an inverse deductible. The rental agreement typically stipulates that purchasing the damage waiver is not mandatory.

Loss development describes how a claim changes from the original loss reserved by the insurer until the claim is closed. Loss development can be significant on long-tail lines of coverage where there tends to be a lag between the reporting and payment of claims, such as workers compensation and liability claims. Loss development occurs because of (1) inflation—both "social inflation" and inflation in the consumer price index—during the period in which losses are reported and ultimately settled and (2) time lags between the occurrence of claims and the time they are actually reported to an insurer. To account for these increases, a "loss development factor" (LDF) or multiplier is usually applied to a claim or group of claims in an effort to more accurately project the ultimate amount for which they will be closed.

A loss development factor (LDF) is used to adjust losses to account for the general upward trend in liability and workers compensation claim totals after the initial reporting period through the closing of the claim. LDFs are used to arrive at the ultimate value that can be expected for a claim. For example, an LDF of 1.50 means that for every $1 of current claims, the ultimate payout will be $1.50. A total of $50,000 in current claims would result in an ultimate payout of $75,000. LDFs can also be used to estimate incurred but not reported (IBNR) losses.