IBNR (Incurred But Not Reported)

What is IBNR?

IBNR — Incurred But Not Reported — is one of the most important concepts in insurance accounting and actuarial science. It represents the estimated liability for insured losses that have already occurred during a policy period but have not yet been notified to the insurer. Because there is always a delay between an insured event occurring and a claim being formally reported, every insurer carries an IBNR liability at any point in time — even if its claims register shows no outstanding claims, there will inevitably be losses that have happened but not yet been notified.

The term is sometimes used more broadly to include IBNER — Incurred But Not Enough Reported — which captures the development required on claims that have been reported but where the case reserve is currently inadequate to reflect the ultimate settlement value. Together, IBNR and IBNER represent the difference between an insurer's current case reserve position and the ultimate cost of all losses it has already incurred.

Why IBNR Varies by Class of Business

The size of the IBNR liability relative to known, reported claims varies dramatically by line of business, driven by the reporting delay (the lag between loss occurrence and claim notification) and the development period (the time from notification to final settlement). Short-tail classes such as motor or household property have brief reporting and settlement cycles — most claims are reported within weeks of the incident and settled within months. IBNR for short-tail classes is therefore relatively modest.

Long-tail classes such as employers' liability, professional indemnity, and especially asbestos or environmental liability have extreme reporting and development delays. An employee exposed to asbestos in 1975 may not develop mesothelioma until the 2000s and may not file a claim until years after diagnosis. The insurer who covered that employer in 1975 must maintain IBNR reserves for potential claims that may emerge decades after the policy expired. Estimating this liability accurately is one of the most challenging tasks in actuarial science.

Actuarial Methods for IBNR Estimation

The most widely used actuarial technique for IBNR estimation is the chain ladder (or development) method, which uses historical loss triangles — tables showing how losses reported in each underwriting year have developed over successive calendar periods — to project future development on current underwriting years. The Bornhuetter-Ferguson method combines chain ladder development factors with an a priori expected loss ratio to produce a credibility-weighted estimate that is more robust when historical data is sparse.

These methods require consistent, high-quality claims data across multiple years. If claims data is incomplete, inconsistently coded, or has gaps in development history, the loss triangles produced will be unreliable, and the IBNR estimates derived from them will carry significant uncertainty. Maintaining clean, complete, and consistently coded claims data is therefore a prerequisite for sound IBNR estimation — not merely a data quality aspiration but a financial reporting necessity.

IBNR in Financial Reporting and Regulation

IBNR forms part of an insurer's technical provisions under Solvency II, requiring actuarial certification of best estimates and documentation of the methods and assumptions used. Auditors scrutinize IBNR estimates closely, comparing them against prior year development to assess whether reserving has been consistent and adequate. Significant IBNR shortfalls, revealed when actual claims emerge above prior estimates, are a common driver of reported losses and, in severe cases, regulatory intervention.