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Incurred But Not Reported (IBNR)


Incurred But Not Reported (IBNR) is a financial term used, predominantly in insurance, to refer to claims that are expected but have not yet been reported to an insurance company. Essentially, they are future liabilities that an insurance firm anticipates but has not yet officially recognized because the claim has not been formally filed. These represent potential losses and are regularly factored into an insurance company’s financial planning and risk assessment processes.


“Incurred But Not Reported” would be phonetically transcribed as:ɪnˈkərd bʌt nɑt rɪˈpɔrtɪd (IBNR)Each individual word can be broken down as follows:Incurred: /ɪnˈkərd/But: /bʌt/Not: /nɑt/Reported: /rɪˈpɔrtɪd/ And “IBNR” would be each letter pronounced separately: /ˈaɪ biː ɛn ˈɑr/

Key Takeaways

  1. Definition: IBNR refers to reserves that insurance companies set aside to cover claims or losses that have occurred but have not yet been reported to the insurance company. It is an estimate of liability, and the accuracy of this estimate directly impacts the financial health of the insurance company.
  2. Importance: The IBNR is crucial for insurers since it allows them to forecast future liabilities. This helps companies maintain sufficient capital to cover any pending losses. Failure to accurately predict these reserves can lead to financial instability for the insurer.
  3. Calculation: The IBNR calculation is complex and is often made using statistical techniques considering factors like reporting lags, settlement patterns, changes in exposure, and claims adjustment practices. External factors like changes in legislation, economic conditions, or social attitudes can also affect the IBNR estimates.


The term Incurred But Not Reported (IBNR) is crucial in the business/finance field, especially in insurance and risk management. This term denotes obligations, specifically claims or liabilities, that have been incurred but no official reporting has been made yet. IBNR is significant because it helps insurers estimate their future liabilities, allowing them to set sufficient reserves to meet these obligations. This term is crucial in ensuring the financial health of an insurance company by preventing any unforeseen liabilities that could put a strain on their financial resources. Having accurate IBNR estimations helps companies maintain a stable and sustainable business model.


Incurred But Not Reported (IBNR) plays a crucial role in financial planning and risk assessment, particularly within the insurance industry. The primary purpose of IBNR is to create a provision for claims or events that have occurred but have not yet been reported to the insurance company. This ensures seamless operation of the insurer’s business by adequately setting aside appropriate reserves to meet these future obligations. It is crucial in maintaining financial stability and a healthy relationship between insurers and insurees by ensuring that all liabilities, no matter when reported, can be catered for without disrupting operations.

The estimation of IBNR reserves involves highly technical actuarial techniques as it majorly relies on approximations and statistical analytics. These approximations take into account historical claim data, claim settlement patterns, changes in exposure, business growth changes, amongst others. The sufficient estimation of IBNR, therefore, reduces the risk of insolvency for an insurance company while ensuring that they can meet all policyholders’ obligations. From a regulatory perspective, accurate estimation of IBNR is regarded as a hallmark of an insurance company’s soundness and a criterion that must be fulfilled to maintain their license to operate and offer insurance products in the market.


1. Insurance Industry: One of the sectors where the concept of IBNR is primarily used is the insurance industry. For example, a car accident might have happened, resulting in damage, but the insured party has not yet reported the incident to the insurance company. The liability is already incurred by the insurer but it’s not reported yet. Thus, the insurance companies need to estimate for these types of claims in their financial reports.

2. Healthcare Sector: IBNR also plays a significant role in the healthcare industry with respect to health insurance policies. For instance, a policyholder may have visited the doctor for a health issue and while the insurance company is responsible for covering the costs, it is not immediately reported to them because the healthcare provider hasn’t filed the claim yet.

3. Workers’ Compensation: Suppose a worker gets injured on the job and notifies their supervisor about the incident. The employer is obligated by law to provide workers’ compensation benefits, but if the worker has not yet filed a claim, this would be an example of IBNR. The company is aware that they will need to pay, or that a claim will be coming, but they do not yet have the paperwork, so it remains as a liability in their record.

Frequently Asked Questions(FAQ)

What does Incurred But Not Reported (IBNR) mean?

Incurred But Not Reported (IBNR) is a term in accounting, particularly in insurance, referring to claims or costs that have happened but the insurance company has not been notified of them yet. It’s an estimate for liabilities that may have to be paid in the future.

In which fields is the term IBNR frequently used?

IBNR is a term mostly used in the insurance industry, particularly in liability and casualty sectors, but is generally applicable to all financial areas dealing with risk management and insurance claims.

How is IBNR calculated?

IBNR claims are usually calculated by actuaries using statistical models. These models typically consider variables like the type of policy, historical claim delay patterns, and other relevant factors.

What is the significance of IBNR for an insurance company?

The IBNR reserve is crucial for insurance companies because it covers potential liabilities. If an insurance company underestimates the IBNR reserve, it may lead to financial difficulty when these unreported claims are revealed and have to be paid out.

How does IBNR impact financial reporting?

Insurance companies include an IBNR reserve in their financial statements. It is part of the insurance company’s liabilities. The ability to accurately estimate this reserve can impact the financial health and profitability of the company.

Why is predicting IBNR accurately so important to insurers?

Predicting IBNR accurately is important as it helps maintain adequate reserves to cover these liabilities. An overestimation can tie up funds unnecessarily, impacting profitability, while underestimation can lead to financial risks and potential insolvency if unexpected claims arise.

Can the amount of IBNR liabilities change over time?

Yes, the amount of IBNR liabilities can change over time as more information becomes available, and claims are either reported, settled, or proven unfounded. Thus, it is important for insurance companies to periodically reassess their IBNR estimates.

Related Finance Terms

  • Claim Reserves: The funds that an insurance company sets aside to pay claims that have been reported but not yet settled, or claims that have been incurred but not yet reported.
  • Loss Adjustment Expenses (LAE): The costs associated with investigating and settling insurance claims.
  • Risk Management: The process of identifying, assessing, and controlling threats to an organization’s capital and earnings.
  • Actuarial Analysis: A type of risk assessment that uses mathematical modeling to predict and manage future uncertainty.
  • Insurance Claims Management: The process of managing a claim from receipt to settlement, including adjudication and payment.

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