IBNR

IBNR (incurred but not reported) is an estimate of claims for care that has already happened but hasn't been reported or paid yet. Because claims arrive weeks or months after the service date, paid claims always understate what a plan actually owes for recent months.

Also calledincurred but not reportedunpaid claims liabilityclaims reserve (broader term)

Updated October 15, 20262 min readWatch the 1:19 video

Why it matters at renewal

Renewals are priced on incurred claims, which means paid claims plus IBNR. A larger IBNR estimate means a higher loss ratio and a bigger increase. It's also the main number behind a self-funded plan's year-end reserve.

Worked example

At December 31, using completion factors (the share of each month's claims expected to be paid so far):

Month incurred	Paid to date	Completion	Estimated total	IBNR
October	$95,000	92%	$103,261	$8,261
November	$82,000	78%	$105,128	$23,128
December	$48,000	45%	$106,667	$58,667
Total	$225,000		$315,056	$90,056

Each estimated total is paid to date ÷ completion. December's $48,000 ÷ 0.45 = $106,667.

December only looks cheap. On a paid basis it's the lowest of the three months. Once its claims are complete, it's the highest.

Read the transcript

At year end, December always looks like your cheapest month. It almost never is.

Claims arrive weeks or months after the care. On December thirty-first, most of December's bills haven't come in yet. That gap is IBNR: incurred but not reported.

Actuaries estimate it with completion factors, the share of a month's claims usually paid by now. October is ninety-two percent complete. November, seventy-eight. December, just forty-five.

Divide what's been paid by how complete it is. December's forty-eight thousand becomes about a hundred seven thousand, the biggest month of the three. Together, that's about ninety thousand dollars the plan owes but hasn't paid.

Renewals are priced on paid claims plus IBNR. A bigger estimate means a higher loss ratio and a bigger increase. For a self-funded plan, it's the year-end reserve.

So ask three things. How much of our claims is estimate? Are the completion factors from our data or the carrier's book? And how close was last year's estimate? Find out more at actuariallysound dot com.

Common misunderstandings

01

"Paid claims show what the plan cost."

Only for months that are fully complete, usually three or more months back.

02

"IBNR is just padding."

The methods are standard. The assumptions, especially completion factors, are what to question.

03

"IBNR goes away at year end."

It becomes run-out: real claims the plan still has to pay.

Questions to ask your carrier or broker

How much of our incurred claims is IBNR estimate versus actual paid claims?
What completion factors were used, and are they based on our data or a book of business?
How did last year's IBNR estimate compare to what was actually paid?