Paid Loss Development of Fixed Size Claims

This paper considers a simple context in which we can quantify the impact of the payment schedule on paid loss development. To isolate the effect of the payment schedule, we restrict to the special case when all claims have the same incurred loss. We consider three simple periodic payment schedules: (1) a uniform payment schedule (2) an escalated (discounted) payment schedule and (3) a schedule that allows a single, fixed proportional adjustment to the payment amount. The paper defines a mathematical model for paid loss development and presents numeric examples to illustrate the sensitivity of paid loss development to the different schedules.