IBNER
/ ib-ner /
A claim comes in: 'fender-bender, probably 3,000.' The adjuster opens a case reserve of 3,000. A month later the other driver hires a lawyer and claims a back injury. Six months later there is physiotherapy, lost wages, a settlement — the claim finally closes at 18,000. Nothing new happened in the accident; the same known claim simply turned out to cost far more than the early estimate. The money an actuary sets aside in advance for this predictable upward drift on already-reported claims is IBNER: incurred but not enough reported.
Precisely, IBNER is the expected future change (usually an increase) in the cost of claims that are already reported and already carry case reserves. It is the gap between today's case-reserve total and what those same known claims will ultimately cost. For example, if 1,000 open claims carry case reserves summing to 20 million, but experience says reported claims of this type typically develop to 1.25 times their current value before closing, the IBNER provision is about 5 million. IBNER is contrasted with pure IBNR, which is for claims not yet reported at all; together IBNER plus pure IBNR make up the bulk reserve the actuary adds on top of the case reserves.
IBNER matters because case reserves are systematically optimistic on long-tail lines — adjusters book what they can see now, and bad news (litigation, complications, inflation in medical and repair costs) tends to arrive later. An actuary who relied only on case reserves would chronically under-reserve. A common misconception is that IBNER means the adjusters did something wrong; it usually does not. Even well-set case reserves develop, because the full facts of a claim are simply not knowable at the start, and reserving must anticipate that.
An insurer's open liability claims carry case reserves of 40 million today. The reported-loss triangle shows that, for this line, known claims grow to about 1.3 times their first-year value before they finally close. The actuary therefore expects these claims to settle near 52 million and books roughly 12 million of IBNER — on claims it already knows about — separately from any provision for claims not yet reported.
IBNER is the predictable upward development of claims the insurer already knows about.
On paid-loss triangles there is no IBNER at all — paid amounts cannot 'develop' on a claim that is closed and paid. IBNER only appears when you measure reported (incurred) losses, which include the movable case reserves.