Incurred Claims

Example

“Although ABC Insurance only paid $8 million in claims last quarter, their incurred claims totaled $12 million when including estimated costs for open and unreported claims.”

Memory Tip

Think 'Incurred = I Now Carry Responsibility' - it's all the claim costs the insurer is now responsible for, whether paid yet or not.

Why It Matters

Incurred claims provide the most accurate picture of an insurer's true claims costs and financial performance, helping determine appropriate premium levels and company profitability. Understanding this concept helps you evaluate insurer financial stability and explains why premium adjustments may occur even when you haven't filed recent claims.

Common Misconception

Many people think insurance companies only count claims they've actually written checks for, but incurred claims include all claims the company is liable for, even if not yet paid. This broader measure is crucial because it reflects the true cost of providing coverage, not just the cash that has changed hands.

In Practice

In January, a health insurer might pay $5 million for claims, have $3 million in pending claims under review, and estimate $2 million in unreported claims from services already provided. Their total incurred claims for January would be $10 million ($5M paid + $3M pending + $2M IBNR), even though only $5 million actually left their bank account. This $10 million figure is what actuaries use to evaluate the true cost of providing coverage and set future premium rates.

Etymology

From Latin 'incurrere' meaning 'to run into' or 'to become liable for,' the term evolved in insurance accounting to describe the total claims liability accumulated during a specific period, regardless of payment timing.

Common Misspellings

Related Terms

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Other insurance terms you should know

See Also