Crucial to the actuarial craft is estimating how losses will develop. Â Say someone gets in a car accident, it’s easy to figure out how much fixing the car will cost but it can take years for all the costs of an injury to come to light. Â If a firm has enough history, you can calculate a loss development to pull those losses forward based on loss data but often the data can be spare so one has to use another method. Â One of the most popular is the Bornhuetter-Ferguson method often abbreviated to “BF method”.
This creates an odd scenario:
Coworker #1: The paucity of data makes LDF selection tenuous.
Coworker #2: I think we should go with the BF value I selected.
Coworker #1: Your BF is poorly supported.
Coworker #2: My BF is better than yours, I think.
I’m glad my grown coworkers get to argue about who has a better BF. Â I really wanted to chime in with “which of your BFs brought you flowers most recently?”