Workers Comp Term Of the Day - IBNR (Incurred But Not Reported)

When a policy of insurance is written it will typically cover a defined (often 12 month) period from inception of the policy. When the policy is sold, a premium is paid by the insured party to the insurer. The number and cost of claims that will arise from the policy are unknown and unknowable amounts at inception. Indeed, at expiration of the policy there can be a high degree of uncertainty as to what the cost of claims will ultimately be. There might be some information available on incurred claims amounts but this can often be zero.

The insurer will conduct a reserving exercise with a view to assessing what this ultimate cost will be. This enables them to assess the profitability of the business that they have written and are planning to write in the future.