Incurred But Not Reported

Example

“The auto insurer increased its IBNR reserves by $2 million, anticipating that many accident claims from the recent ice storm hadn't been reported yet due to phone system outages.”

Memory Tip

Think 'Invisible But Not Really' - these claims are invisible to the insurer now but will become very real expenses later.

Why It Matters

IBNR reserves directly affect insurance company financial stability and your premium costs, as insurers must maintain adequate funds for these hidden claims. Accurate IBNR estimation helps ensure your insurer remains solvent and can pay future claims while preventing excessive premium increases from underestimating claim costs.

Common Misconception

Many people assume insurance companies only need to worry about claims they know about, but IBNR claims often represent 20-40% of total claims costs in some lines of insurance. Policyholders may not realize that their premiums include provisions for these unreported claims, which is why insurers can't simply lower rates immediately after a period with fewer reported claims.

In Practice

After a major earthquake, an insurance company might receive 1,000 property damage claims in the first week, but actuaries estimate the ultimate number will reach 3,500 claims totaling $50 million. The company must set aside reserves for the estimated $32 million in IBNR claims (2,500 unreported claims) even though they haven't received these claims yet. This reserve ensures funds are available when homeowners finish assessing damage and file claims over the following months.

Etymology

This actuarial term developed in the early-to-mid 20th century as insurance became more sophisticated in reserving practices, literally describing claims that have been 'incurred' (occurred) but remain unreported to the insurer.

Common Misspellings

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Other insurance terms you should know

See Also