What is Incurred But Not Reported (IBNR)?

There can be a significant delay in the reporting of claims, particularly for the higher volume benefits such as Dental and EHB. This can range from a few days to several months. This creates an issue, as a group’s renewal rates are based on their claims experience, which is calculated at a point in time. It will therefore not include all the claims from that period, due to the reporting lag. In addition, if the group decides to cancel coverage or switch carriers then no additional premium is earned by the insurance carrier, but they remain eligible for those claims that have been incurred but not yet reported (IBNR).

To counteract this, insurance carriers create a buffer of premiums which are to be used to cover claims in the event a group cancels coverage. This buffer is referred to as the IBNR charge and is usually expressed as a % of premiums or as a % of paid claims. This premium is reserved at the end of the first renewal and is held to cover IBNR claims. Therefore this amount is not included in the experience rating renewal calculations. In subsequent renewals the IBNR is recalculated and the previous IBNR is released, which in effect means the customer is only paying for the difference. In this way the IBNR premium being held is always reflecting the most recent experience.

IBNR charges differ between insurance carriers and products and should be reviewed as part of an overall marketing check. Higher IBNR %’s tie up more premiums, which will increase renewal rates. With the advent of more efficient methods for submitting a claim, such as online claims portals, drug cards and smart phone apps, IBNR charges have slowly been reducing as the delay between incurring a claim and reporting it is reducing.