Incurred But Not Reported (IBNR) in 2025: How It Impacts Australian Insurance

Incurred But Not Reported (IBNR) claims are a cornerstone of insurance accounting, and in 2025, they’re more relevant than ever for Australian policyholders and businesses. As regulatory standards tighten and data analytics improve, understanding IBNR can help Aussies make sharper decisions—whether you’re a small business owner, CFO, or an individual comparing policies.

What is IBNR and Why Does It Matter in 2025?

IBNR stands for “Incurred But Not Reported.” In simple terms, these are claims that have happened but haven’t yet been reported to the insurer. For example, imagine a workplace injury that occurred in December 2024 but isn’t filed as a claim until February 2025. The insurer needs to account for this ‘invisible’ liability when setting aside reserves and determining future premiums.

• IBNR in action: Think of natural disasters or health events where reporting delays are common—insurers must anticipate these financial obligations even before they’re formally lodged.

• Key in long-tail insurance: Sectors like workers’ compensation and public liability are most impacted, as claims may surface years after the event.

• 2025 update: With the Australian Prudential Regulation Authority (APRA) now requiring more granular data reporting, insurers are under pressure to estimate IBNR more accurately than ever before.

How IBNR Affects Insurance Pricing and Business Risk

The way insurers calculate IBNR directly influences how much you pay for insurance. In 2025, advanced analytics and machine learning are being used to refine these estimates—potentially leading to sharper pricing but also more volatility in certain sectors.

• Premiums and reserves: If IBNR is underestimated, insurers may face unexpected payouts, threatening their solvency. Overestimating leads to higher premiums, making insurance less affordable for businesses and individuals.

• Impact on business: For companies with complex risk profiles, like construction or healthcare, understanding how insurers model IBNR can help in negotiating better rates or choosing insurers with robust risk management frameworks.

• 2025 trend: APRA’s Life Insurance Capital Adequacy Standard (LPS 117) now requires more detailed risk-adjusted provisions, meaning actuaries must use scenario analysis and real-time data feeds to estimate IBNR liabilities.

Regulatory and Reporting Changes: What’s New This Year?

Regulators are keeping a sharp eye on how IBNR is handled, given its impact on the stability of Australia’s insurance sector. In 2025, several reforms are shaping the landscape:

• APRA’s enhanced data reporting: New rules mandate quarterly reporting of IBNR estimates, broken down by business line and geography. This gives APRA earlier warning of emerging risks.

• Transparency for policyholders: Insurers are now expected to explain how IBNR affects their reserve adequacy in annual statements, making it easier for customers and businesses to assess insurer stability.

• Focus on systemic risks: With climate-related events and health pandemics still a concern, APRA is urging insurers to stress-test their IBNR assumptions against extreme but plausible scenarios.

Practical Implications for Australians

Understanding IBNR isn’t just for actuaries—it can help everyone from small business owners to everyday policyholders:

• Business owners: When comparing insurers, ask about their approach to IBNR and whether they have a track record of stable premium adjustments.

• Individual policyholders: Insurer financial strength ratings now incorporate IBNR adequacy—keep an eye on these when choosing cover in 2025.

• Investors: For those holding shares in listed insurers, IBNR volatility can impact share price and dividend stability.

The Bottom Line

IBNR might sound technical, but its impact is felt by anyone with an insurance policy or stake in the sector. In 2025, with regulatory changes and new data-driven tools, the stakes for accurate IBNR estimation have never been higher. By understanding this hidden force, Australians can make smarter choices—whether buying insurance, running a business, or investing in financial markets.