Incurred but not reported losses (IBNR)

A knowledgeable professor of finance must be well-versed in the concept of "incurred but not reported" (IBNR) losses, which refers to claims that are not reported to the insurer or reinsurer until years after the policy is sold. This delay often occurs with liability claims, where injuries may not surface until long after the event that caused them. For instance, asbestos-related diseases may only manifest decades after exposure. Moreover, IBNR also encompasses estimates for claims already reported but where the full extent of the injury is still unknown. For instance, in a workers' compensation claim, the impact of work-related injuries on a worker's earning capacity may unfold gradually over time. Consequently, insurance companies regularly adjust their reserves for IBNR losses as new information becomes available.