Exclusively from Foa & Son
Here is a subject that may only be of interest to a few of our readers, but if you’re interested in it you’ll likely be very interested in it.
IBNR is an insurance term that means “Incurred But Not Reported”. When actuaries and insurance underwriters look at large casualty insurance policies (usually workers compensation or liability) they’ll try to predict total cost of claims from past years to help to determine needed reserves and/or future pricing.
Occurrence type casualty policies always present the possibility that something may have happened (an occurrence) that the policyholder doesn’t yet know about, but that will lead to a covered claim in the future. That’s true IBNR; there was an occurrence that will lead to a covered claim, but it has not yet been reported to the policyholder or the insurance company. The loss is incurred, but not yet reported; IBNR.
Unfortunately the term IBNR is often misused to also refer to normal loss development. It’s an irrefutable fact that the longer claims stay open the more they cost, and that development, over time, can be pretty accurately calculated from historical loss experience. It’s not uncommon to hear the term IBNR applied to describe what would correctly be described as loss development.
If you have a large retro rated or paid loss policy, you’ve more than likely heard this term before. Just remember: loss development and true IBNR will both factor into your ultimate costs, but they are not the same thing.