What is the difference between case o/s reserve and IBNER? My understanding of case o/s reserve is that these are reserves (set by the claims team) for claims that are reported but not paid yet. As the claims develop, there will be changes in claims o/s reserve as well. IBNER is incurred but not enough reported - which implies that the claim is reported but not in full, hence IBNER set aside for further development in the claim reported Both these reserves are for claims reported (which may develop in the future) - then what is the difference?
Hi, Case reserves are estimates of the cost to settle individual claims that have been reported to the insurance company but not yet settled. These reserves are established on a case-by-case basis, taking into account the information available about each claim. The estimation process might consider factors such as the nature of the claim, legal discussions, potential for recovery from third parties, and the experience and judgment of claims adjusters. IBNER reserves are a component of IBNR reserves. While IBNR reserves as a whole are meant to account for claims that have occurred but have not been reported to the insurer at the time of the reserve estimation, IBNER specifically refers to additional reserves that are necessary because the initial case estimates for reported claims are insufficient. Essentially, IBNER captures the notion that, for claims that have already been reported, the initial reserve estimates are not enough to cover the ultimate settlement costs. This underestimation could be due to various reasons, including changes in the legal environment, medical advancements, or simply initial underestimation of the claim's complexity. As at the valuation date, the insurer holds Outstanding Case Reserves as a singular estimate reflecting the current understanding and assessment of reported claims. In contrast, IBNER is specifically allocated to recognise and account for the potential development beyond these initial estimates, acknowledging that the ultimate costs may exceed what has been reserved under OCR due to factors not fully known or appreciated at the time of the initial reserve setting.
Just to clarify Darshan's response... IBNER can be negative too, when reserves are over-estimated. IBNER is a component of IBNR, but often we say IBNR is the sum of IBNER and pure IBNR. IBNR and IBNER are both components of Outstanding Claims Reserves, along with a few other components.
