IBNR – Incurred but not reported (Insurance) Defined
Incurred But Not Reported (IBNR) refers to a reserve account that is utilized by an insurer as a contingency for claims or events that have occurred but are yet to be reported to the insurance company. In case of incurred but not reported (IBNR), an actuary will determine the possible damages. The insurer would create a reserve account to deposit funds to cover the contingent losses.
A Little More About Incurred But Not Reported
IBNR is often used by insurance companies, especially in the vicinity of East and Gulf Coasts of United States, as these areas are more vulnerable to natural disasters such as hurricane and typhoons etc. When natural disasters occurs, an actuary after the disaster will determine the damages incurred to infrastructure. Any potential losses will be estimated.
A list of possible contingencies included in IBNR include:
- Delayed reporting of products that are defective
- Delayed in reporting environmental claims
- Any injuries related to worker place occurs but the report of compensation for injury is yet to submit for claim
- Healthcare claims report is delayed to healthcare providers.
What Factors are Considered in Calculating an IBNR?
Actuaries may use any of the following data to calculate IBNR:
- Total claim amount
- Serial of claim
- Claim dates
- Settlement expense of claim
- Date on which loss occurs
- Insurance Policy from date
- Insurance Policy number
- Insurance Policy to date