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Incurred But Not Reported (Insurance) IBNR Definition

IBNR – Incurred But Not Reported (Insurance) Definition

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 the United States, as these areas are more vulnerable to natural disasters such as hurricane and typhoons, etc. When natural disasters occur, 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

References for Incurred But Nor Reported (IBNR)

Academic Research on IBNR – Incurred but not reported

●      The actuary and IBNR, Bornhuetter, R. L., & Ferguson, R. E. (1972, November). (Vol. 59, No. 112, pp. 181-195).

●      An empirical analysis of the magnitude and accuracy of incurredbutnotreported reserves, Aiuppa, T. A., & Trieschmann, J. S. (1987). Journal of Risk and Insurance, 100-118. This paper investigates the Incurred-But-Not-Reported (IBNR) components of the reserves established by Property/Liability insurance companies for five liability lines.

●      IBNR-claims and the two-way model of ANOVA, Kremer, E. (1982). Scandinavian Actuarial Journal1982(1), 47-55. In this paper, a method for estimating the expected value of IBNR-c1aims is derived by transforming the classical multiplicative model into a two-way model of Analysis of Variance, in which easy tractable results of Mathematical Statistics can be applied. The resulting method is shown to be strongly connected to the classical chain ladder method.

●      Prediction of RBNS and IBNR claims using claim amounts and claim counts, Verrall, R., Nielsen, J. P., & Jessen, A. H. (2010). ASTIN Bulletin: The Journal of the IAA40(2), 871-887. In this article, a model is proposed using the run-off triangle of paid claims and also the numbers of reported claims (in a similar triangular array). The model explicitly takes into account the delay from when a claim is incurred and to when it is reported (the IBNR delay) and the delay from when a claim is reported and to when it is fully paid (the RBNS delay). The results are compared with those of the chain ladder technique.

●      A statistical approach to IBNR-reserves in marine reinsurance, Hertig, J. (1985). ASTIN Bulletin: The Journal of the IAA15(2), 171-183. This paper evaluates the security loading of IBNR-reserves at portfolio level.

●      A multivariate analysis of loss reserving estimates in property-liability insurers, Weiss, M. (1985). Journal of Risk and Insurance, 199-221. This article tests the hypotheses that exogenous economic developments and smoothing activity significantly affect loss reserving errors in the automobile liability insurance line. A sample of sixteen large automobile liability insurers is analyzed using pooled, cross-section time series regression for the period 1955-1975.

●      Prediction of IBNR claim counts by modelling the distribution of report lags, Kaminsky, K. S. (1987). Insurance: Mathematics and Economics6(2), 151-159. This paper explains the concept of IBNR claims. In this paper, the authors discuss some methods of predicting the number of IBNR claims.

●      A non-parametric method for incurred but not reported claim reserve estimation, Lopes, H., Barcellos, J., Kubrusly, J., & Fernandes, C. (2012). International Journal for Uncertainty Quantification2(1). This work introduces new non-parametric models to IBNR estimation based on kernel methods; namely, support vector regression and Gaussian process regression. The proposed models are then compared to Mack′s model using real data examples. This paper aims to show that the proposed model are more competitive than the Mack’s model.

●      Applying copula models to individual claim loss reserving methods, Zhao, X., & Zhou, X. (2010). Insurance: Mathematics and Economics46(2), 290-299. The estimation of loss reserves for incurred but not reported (IBNR) claims presents an important task for insurance companies to predict their liabilities. In this article, the authors propose to use semi-competing risks copula and semi-survival copula models to fit the dependence structure of the event times with delays in the individual claim loss model.

●      Investment returns and yields to holders of insurance, Smith, M. L. (1989). Journal of Business, 81-98.

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