Estimates for outstanding claims reserves are carried out by estimates of individual outstanding claims or by using statistical methods for the totals.
Incurred But not Reported (IBNR)
Incurred But Not Reported (IBNR) is a type of reserve used as the provision for claims and/or events that have occurred, but claims related to which have not yet been reported to the insurance company.
In IBNR calculations, an actuary will estimate potential damages, and the insurance company may decide to set up reserves to allocate funds for the expected losses.
You need to keep yourself aware of, and we told you a bit about it in last exercise as well. Generally, it is Projected Ultimate Claims – Reported Claims
The lesson is just to make you understand what are IBNR reserves. We cover the calculation and methodology to calculate projected ultimates using CLM and other methods in our next section, once you understand various terms required.
Parts of IBNR
- Pure IBNR – The reserves related to incurred events that have not yet been reported
- IBNER (Incurred but not enough reported) – The reserves for claims that have been reported but may have additional development. The IBNER is closely related to the second type of Reserves described below as a good case reserving can minimize the need for IBNER.
Questions Related to IBNR Reserves
Incurred But Not Reported (IBNR) is a type of reserve used as the provision for claims and/or events that have occurred, but claims related to which have not yet been reported to the insurance company.
IBNR is needed to be kept because of claim reporting delays due to bureaucratic red tape (excessive adherence to official rules and formalities) and processing lag or settlement delays. Because IBNR claims represent latent liabilities, companies must calculate a proper estimate of funds to hold in reserve.