Loss Development

What Does Loss Development Mean?

Loss development is the difference between the insurer's initial estimate of the value of a loss and the actual value of the loss as paid out in a successful claim.

There are several factors that can account for the difference represented by loss development, such as inflation for claims that are not settled quickly.

Insuranceopedia Explains Loss Development

While there is an exact amount of insurance money that will cover an insured loss, time or the changing value of money over time can affect the actual amount of the payout after the claim is processed.

Loss development is an important factor for insurance companies to consider, since claims are not always honored instantaneously and the finalization process might stretch out for long periods.