Quote:
Originally Posted by The_Jazz
Yes, ace. Because any good actuary will tell you that IBNR is, at the root, a "best guess". It is impossible to accurately predict, as seen with the California regulatory changes for WC in the late 90's.
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You have a right to assume what you want about my "training", but I will simply say that IBNR is not a difficult or obscure concept, nor does it only apply to insurance. As you know IBNR is "incurred but not reported". To illustrate how simple the concept is and how it can be estimated accurately I offer this example. Let's say I have lived in my home for 10 years. I keep track of my natural gas bill and I have 10 years of data. I also track the general weather conditions, cooking and laundry (my uses of gas). I know that my gas bill over the ten years in the month of September ranges from $20 to $35. The highest bill ever was once in a January when there were record low temperatures and that bill was $125. The lowest bill amounts are in the summer months and range from $10 to $15. I am now more than half way through September and the weather has been normal (the biggest factor affecting the cost variance) and my other uses (cooking, heating, laundry has been normal). I have incurred gas expenses that have not been reported. I can tell you almost to the dollar what the incurred but not reported gas costs are through today. It would not be a guess. It is not a "best guess". It would be a calculated number.
If you are suggesting that there are insurance companies that "guess" thier IBNR and have gone out of business because their "guess" was wrong - I accept that. I would also add that may be the reason they went out of business. If you know actuaries who call what they do making "best guesses", I don't know what to say to that - but the irony is that even when I go to Vagas and play craps or blackjack I don't make guesses - I know the odds of each bet and make informed choices.