insurance

Incurred Claims

The total amount of claims expenses that an insurance company becomes liable for during a specific period, including both claims that have been paid and those that are still outstanding or unreported. This represents the insurer's actual claims expense regardless of payment timing.

Example

“Although XYZ Insurance only paid out $2 million in claims last quarter, their incurred claims totaled $2.8 million when including estimates for pending and unreported claims from that period.”

Memory Tip

Think 'True Cost Tally' - incurred claims show the true total cost of claims from a period, whether paid immediately or not.

Why It Matters

Incurred claims provide a more accurate picture of an insurance company's financial performance and claims experience than just looking at paid claims, which can be misleading due to timing differences. This metric helps determine appropriate premium levels and assesses the insurer's profitability and financial stability.

Common Misconception

Many people confuse incurred claims with paid claims, thinking they're the same thing, but incurred claims include all claims liability from a period regardless of when payment occurs. This distinction is crucial because an insurer might pay very little in claims during a month when major disasters occur, but their incurred claims would be much higher due to the new liabilities created.

In Practice

In March, Regional Insurance experienced a major storm that caused $5 million in damage. By month-end, they had paid out only $1.2 million in claims as most policyholders were still getting repair estimates. However, their March incurred claims totaled $4.8 million, including $1.2 million paid, $2.1 million in reported but unpaid claims, and $1.5 million in estimated IBNR claims. This $4.8 million figure accurately reflects the company's true claims cost for March, impacting their financial statements and rate-setting decisions.

Etymology

From Latin 'incurrere' meaning 'to run into' or 'to become liable for,' combined with 'claims' from Latin 'clamare' meaning 'to call out' or demand payment.

Common Misspellings

Incured ClaimsIncurrd ClaimsIncurred ClamsIncurred Claimes

Related Terms

Paid Claims loss ratio

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