What is Reported But Not Settled (RBNS)
Losses that have been reported to an insurance company, but that have not been settled by the end of the accounting period. Reported but not settled (RBNS) losses are calculated using an estimation of the severity of the loss based off of the available information from the claims settlement process.
BREAKING DOWN Reported But Not Settled (RBNS)
Calculating reported but not settled losses requires an understanding of where claims are in the settlement process. The calculation is an estimate based off information an insurer has at hand, including information from court documents. The precision of the calculation depends on the type of loss being settled, with more complex claims being more difficult to estimate.
The amount an insurer places in reserve to cover RBNS losses depends on state insurance regulations. For example, insurance companies may be required to set aside the average value for a similar class of claim for each claim that has not been settled.
RBNS losses differ from incurred but not reported (IBNR) losses in that the former has been reported to the insurance company, but are similar in that neither have been settled during the accounting period. In many cases it may be difficult for an actuary to tell the difference between IBNR and RBNS losses, depending on the model that is being used. This is because claims are developed differently according to the reporting year and the accounting year. These claims may be forecasted separately.
Insurance companies calculate their claims and the losses associated with those claims using a variety of different sources. These include liabilities from the contracts that they underwrite as well as the contracts that they ceded to reinsurers, state regulations, court opinions concerning claims, and actuarial estimates. This information applies to loss adjustment expenses and claims expenses.
Importance of Reported But Not Settled (RBNS) Estimates
Estimating IBNR and RBNS reserves is among the most important jobs an actuary has in an insurance company. These estimates affect the profitability of a insurance company, and bad estimates could have grave consequences. If the actuary over-estimates, it could lead to the insurance company having less money to invest in the market. It could also make it seem like the company is not preforming well, which could lead to them increasing the price of their insurance products. If the actuary under-estimates, it may seem as the company is performing well, and they might cut prices. This would render them ill-equipped for unforeseen claims from past accidents, which could have grave consequences for the insurance company. The worst case scenario would be that they are insolvent.