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What is IBNR?

IBNR is an acronym for “incurred but not reported” insurance claims. You’ll typically see an IBNR reserve for companies in the insurance industry. The reserve is a provision for insurance claims that their customers have incurred but not yet reported to the insurance company (similar to knowing you have to pay an invoice, but you haven’t actually received an invoice yet).

For example, if there was a tornado in the great state of Boobaloo, then certain people may have their farms destroyed! Farmer Bill has his farm destroyed, but he hasn’t yet reported it to the insurance company. After a major event like a tornado, it could takes weeks or months for all impacted parties to report the event to their insurance provider. Farmer Bill’s claim should generally be included in the IBNR estimate that the insurance company would calculate.

For accounting and finance, purposes you should understand that total insurance liability equals reported losses, plus IBNR losses (i.e. those not yet reported. So if the insurance company had reported losses/claims of $5,000, and they estimated another $3,000 of claims that had been incurred but not reported (“IBNR”), then total insurances losses for the insurance company should total $8,000 in their financial statements.

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