 |
In insurance, incurred but not reported (IBNR) claims is the amount owed by an insurer to all valid claimants who have had a covered loss but have not yet reported it. Since the insurer knows neither how many of these losses have occurred, nor the severity of each loss, IBNR is necessarily an estimate. The sum of IBNR losses plus reported losses yields an estimate of the total eventual liabilities the insurer will cover, known as ultimate losses. [1] [2]
The term "IBNR" is sometimes ambiguous, as it is not always clear whether it includes development on reported claims.
Pure IBNR refers to only unreported claims, not any development on reported claims.
Incurred but not enough reported (IBNER), in contrast, refers to development on reported claims. For example, when a claim is first reported, a $100 payment might be made, and a $900 case reserve might be established, for a total initial reported amount of $1000. However, the claim may later settle for a larger amount, resulting in $2000 of payments from the insurer to the claimant before the claim is closed. The estimated amount of this future development on reported claims is known as IBNER.
In some cases, the term "IBNR" refers only to pure IBNR; in other case, it is understood to be the sum of pure IBNR and IBNER.
Actuarial loss reserving methods including the chain-ladder method, Bornhuetter–Ferguson method, expected claims technique, and others are used to estimate IBNR and, hence, ultimate losses. Since the implementation of Solvency II, stochastic claims reserving methods have become more common.
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.
Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of an insured person. Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The policyholder typically pays a premium, either regularly or as one lump sum. The benefits may include other expenses, such as funeral expenses.
Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insurance liabilities to the other insurance company. The company that purchases the reinsurance policy is referred to as the "ceding company" or "cedent". The company issuing the reinsurance policy is referred to as the "reinsurer". In the classic case, reinsurance allows insurance companies to remain solvent after major claims events, such as major disasters like hurricanes or wildfires. In addition to its basic role in risk management, reinsurance is sometimes used to reduce the ceding company's capital requirements, or for tax mitigation or other purposes.
In an insurance policy, the deductible is the amount paid out of pocket by the policy holder before an insurance provider will pay any expenses. In general usage, the term deductible may be used to describe one of several types of clauses that are used by insurance companies as a threshold for policy payments.
Liability insurance is a part of the general insurance system of risk financing to protect the purchaser from the risks of liabilities imposed by lawsuits and similar claims and protects the insured if the purchaser is sued for claims that come within the coverage of the insurance policy.
In insurance, co-insurance or coinsurance is the splitting or spreading of risk among multiple parties.
Total Permanent Disability(TPD) is a phrase used in the insurance industry and in law. Generally speaking, it means that because of a sickness or injury, a person is unable to work in their own or any occupation for which they are suited by training, education, or experience. An individual or group of individuals can insure themselves against it through a disability insurance policy, as part of a life insurance package or through worker's compensation insurance.
Critical illness insurance, otherwise known as critical illness cover or a dread disease policy, is an insurance product in which the insurer is contracted to typically make a lump sum cash payment if the policyholder is diagnosed with one of the specific illnesses on a predetermined list as part of an insurance policy.
In the insurance industry in the United States, an experience modifier or experience modification is an adjustment of an employer's premium for worker's compensation coverage based on the losses the insurer has experienced from that employer. An experience modifier of 1 would be applied for an employer that had demonstrated the actuarially expected performance. Poorer loss experience leads to a modifier greater than 1, and better experience to a modifier less than 1. The loss experience used in determining the modifier typically comprises three years but excluding the immediate past year. For instance, if a policy expired on January 1, 2018, the period reflected by the experience modifier would run from January 1, 2014 to January 1, 2017.
"Stochastic" means being or having a random variable. A stochastic model is a tool for estimating probability distributions of potential outcomes by allowing for random variation in one or more inputs over time. The random variation is usually based on fluctuations observed in historical data for a selected period using standard time-series techniques. Distributions of potential outcomes are derived from a large number of simulations which reflect the random variation in the input(s).
In insurance, an actuarial reserve is a reserve set aside for future insurance liabilities. It is generally equal to the actuarial present value of the future cash flows of a contingent event. In the insurance context an actuarial reserve is the present value of the future cash flows of an insurance policy and the total liability of the insurer is the sum of the actuarial reserves for every individual policy. Regulated insurers are required to keep offsetting assets to pay off this future liability.
Loss reserving is the calculation of the required reserves for a tranche of insurance business, including outstanding claims reserves.
Finite risk insurance is the term applied within the insurance industry to describe an alternative risk transfer product that is typically a multi-year insurance contract where the insurer bears limited underwriting, credit, investment and timing risk. The assessment of risk is often conservative. The insurer and the insured share in the net profit of the transaction, including loss experience and investment income. The premium is generally well in excess of the present value of a conservative estimate of loss experience. The policy generally contains retrospective rating provisions such as
Solvency II Directive 2009 is a Directive in European Union law that codifies and harmonises the EU insurance regulation. Primarily this concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency.
A with-profits policy (Commonwealth) or participating policy (U.S.) is an insurance contract that participates in the profits of a life insurance company. The company is often a mutual life insurance company, or had been one when it began its with-profits product line. Similar arrangements are found in other countries such as those in continental Europe.
In Australia, it is a mandatory requirement for registered healthcare practitioners to hold appropriate medical indemnity insurance coverage for healthcare practices in Australia. Medical indemnity is a form of professional indemnity coverage defined by Australian legislation – the Medical Indemnity Act 2003 and is a type of general insurance. In the United Kingdom, this type of professional indemnity for healthcare practitioners is generally referred to as ‘professional indemnity’ and in the United States, medical negligence insurance. In Australia, the term medical indemnity can be used to refer to all healthcare indemnity, not just that provided for medical doctors. However, there are only six Australian Health Practitioner Regulation Authority (AHPRA) listed insurers that provide medical indemnity insurance cover to medical practitioners. Australian medical practitioner medical indemnity providers include:
The Bornhuetter–Ferguson method is a loss reserving technique in insurance.
The chain-ladder or development method is a prominent actuarial loss reserving technique. The chain-ladder method is used in both the property and casualty and health insurance fields. Its intent is to estimate incurred but not reported claims and project ultimate loss amounts. The primary underlying assumption of the chain-ladder method is that historical loss development patterns are indicative of future loss development patterns.
Loss development factors or LDFs are used in insurance pricing and reserving to adjust claims to their projected ultimate level. Insurance claims, especially in long-tailed lines such as liability insurance, are often not paid out immediately. Claims adjusters set initial case reserves for claims; however, it is often impossible to predict immediately what the final amount of an insurance claim will be, due to uncertainty around defense costs, settlement amounts, and trial outcomes. Loss development factors are used by actuaries, underwriters, and other insurance professionals to "develop" claim amounts to their estimated final value. Ultimate loss amounts are necessary for determining an insurance company's carried reserves. They are also useful for determining adequate insurance premiums, when loss experience is used as a rating factor
Reinsurance to close (RITC) is a business transaction whereby the estimated future liabilities of an insurance company are reinsured into another, in order that the profitability of the former can be finally determined. It is most closely associated with the Lloyd's of London insurance market that comprises numerous competing "syndicates", and in order to close each accounting year and declare a profit or loss, each syndicate annually "reinsures to close" its books. In most cases, the liabilities are simply reinsured into the subsequent accounting year of the same syndicate, however, in some circumstances the RITC may be made to a different syndicate or even to a company outside of the Lloyd's market.