Incurred But Not Reported (IBNR)

Some losses are reported long after they occur. A person injured in an accident may not file a claim for months. Liability claims, such as those for illness caused by exposure to harmful substances, may emerge years later.

Insurers must estimate these future claims for events that have already happened and include them in their liabilities. IBNR reserves are usually estimated by actuaries using historical patterns of how claims develop over time.

For example, at the end of a year, an insurer might estimate that, based on past experience, a further 20,000,000 of claims will be reported for accidents that occurred during the year, and record this as an IBNR reserve.

IBNR reserves can be a large part of an insurer's liabilities, especially for long-tail business, such as liability and workers' compensation insurance, where claims take years to emerge and settle. Because they rely on estimates, they involve significant judgment, and changes to IBNR estimates can materially affect an insurer's reported profits.