Incurred claims are the total cost of insurance claims that have happened, including what’s already paid and what’s expected to be paid later.
Understanding Incurred Claims in Everyday Terms
Incurred claims are one of those insurance terms that sound technical but are actually very straightforward once you know what they mean.
In simple words, incurred claims represent the full cost of losses that have already occurred, whether or not the insurance company has paid them yet. This total includes two parts:
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Claims that have already been paid
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Claims that have happened but are still waiting to be paid, so money is set aside in reserve
So even if a claim hasn’t been fully settled, it still counts as an incurred claim as long as the event causing the loss has already taken place.
Why Insurance Companies Track Incurred Claims
Insurance companies don’t just care about the checks they’ve already written. They also need to understand what they will have to pay in the future for events that already happened.
Tracking incurred claims helps insurers:
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Understand their true costs
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Set accurate prices for policies
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Stay financially stable
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Meet regulatory and reporting requirements
If insurers only looked at paid claims, they would be missing a big part of the picture. Incurred claims give a more complete and realistic view of their financial obligations.
Paid Claims vs. Reserved Claims
To really understand incurred claims, it helps to look at the two pieces separately.
Paid Claims
These are the claims the insurance company has already paid out. For example, if your car was damaged in an accident and the insurer has already covered the repair costs, that amount is a paid claim.
Claims Held in Reserve
Not all claims are settled right away. Some take months or even years to resolve, especially in cases involving injuries or legal issues. For these claims, insurers set aside an estimated amount of money called a reserve.
Even though the money hasn’t been paid yet, it’s still counted as part of incurred claims because the loss has already occurred.
A Simple Real-Life Example
Let’s say an insurance company is reviewing its finances at the end of the year.
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It has already paid $600,000 in claims
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It expects to pay another $400,000 for claims that have happened but aren’t settled yet
In this case, the insurer’s incurred claims total $1,000,000.
This number gives a much clearer picture of the company’s real costs than looking at paid claims alone.
How Incurred Claims Affect Insurance Prices
Incurred claims play a big role in how insurance premiums are set.
If incurred claims are rising over time, it usually means:
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More claims are happening
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Claims are becoming more expensive
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Risks are increasing
When that happens, insurance companies may raise premiums to cover those higher costs. On the other hand, if incurred claims are stable or decreasing, pricing may stay the same or even improve.
So even if you never hear the term “incurred claims,” it still affects what you pay for insurance.
Incurred Claims vs. Reported Claims
Another point that often causes confusion is the difference between incurred claims and reported claims.
A reported claim is one the insurer knows about. An incurred claim is any claim where the loss has happened, whether it’s been reported or not.
That’s why incurred claims may also include estimates for claims that have happened but haven’t been reported yet. These estimates help insurers avoid being caught off guard by future claim filings.
Why Incurred Claims Matter to You
For policyholders, incurred claims help ensure that insurance companies remain financially strong and able to pay claims when needed. For businesses and regulators, they provide a more accurate view of an insurer’s financial health.
Incurred claims aren’t just accounting numbers — they represent real events, real losses, and real obligations.
The Big Picture
Incurred claims are simply paid claims plus the money set aside for claims that have already happened but aren’t paid yet. By tracking incurred claims, insurers get a true picture of their costs and responsibilities.
Understanding this concept makes it easier to see how insurance works behind the scenes — and why proper planning matters so much in the insurance world.
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