IBNR ReservesIBNR
Money set aside for claims Incurred But Not Reported — the insurer's estimate of trouble it has already caused but not yet seen.
Why you care
Some claims have happened but haven't reached the insurer yet — an accident last week, a hospital bill still in the post. IBNR is the reserve for exactly those: trouble caused but not yet reported. Because it's an estimate, it's also the easiest lever to quietly flatter or fix results.
Run the numbers
An insurer knows accidents occurred in March but the claims won't all land until June. It reserves ₹3 cr of IBNR now (illustrative). Book too little and this year's loss ratio looks great — until next year, when the real claims arrive and blow a hole in it.
Where this goes
IBNR feeds straight into claims incurred, so it moves the loss ratio directly. It's one of the technical reserves sitting on the balance sheet — and because it's judgement, not fact, it's where an aggressive or a conservative insurer reveals itself.
Why you care
IBNR stands for Incurred But Not Reported — reserves an insurer holds for claims that have already happened but that it hasn't been told about yet. The event has occurred; the paperwork simply hasn't arrived.
This exists because of a lag built into insurance. A car crashes on 28 March, but the claim is filed in April; a diagnosis is made in the last week of the financial year, but the hospital bill lands months later. If an insurer only reserved for claims it had actually received, it would systematically understate what it owes at every year-end. So actuaries estimate the claims that have been incurred but not reported and set aside money for them. The catch is that IBNR is a judgement, not a receipt. That makes it the most sensitive dial in the accounts, because it flows into claims incurred. Shading the IBNR estimate down makes this year's loss ratio look better, and the shortfall only shows up later when the real claims come in. Conservative reserving does the opposite — it takes the pain early and keeps the numbers honest.
Run the numbers
An insurer closes its books on 31 March. It has paid ₹62 crore of claims and knows of ₹5 crore more that are reported and still open. But its actuaries look at the pattern of how claims usually trickle in and estimate that another ₹3 crore of claims have already been incurred and simply not reported yet.
- Reserve it fully (₹3 cr IBNR): claims incurred = 62 + 5 + 3 = ₹70 cr → loss ratio 70% on ₹100 cr premium.
- Under-reserve it (book only ₹1 cr): claims incurred = ₹68 cr → loss ratio 68%.
The second version looks two points better and might flatter a bonus or a results headline. But the claims are real; they were incurred. When they surface next year, they land on that year's loss ratio instead, on top of its own fresh claims. The flattery is a loan from the future at a punishing rate (illustrative). IBNR doesn't change how many claims happened; it only changes which year admits them.
Where this goes
IBNR is a component of claims incurred, so it feeds the loss ratio directly, and it is the main reason a loss ratio can be quietly managed. It is also one of the technical reserves — the pool of money legally parked against future claims that, on the other side of the balance sheet, is part of what the insurer invests. When you read a general insurer, a stable, adequately reserved IBNR is a quiet mark of quality; a loss ratio that suddenly deteriorates "because of prior-year reserves" is often IBNR catching up with reality.