The difference between the original loss as initially reserved by an insurer
and its subsequent evaluation later or at the time of its final disposal.
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.
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