What is the consequence of new information on IBNR development?

New information regarding reserves for incurred but not reported (IBNR) losses can dramatically impact the estimates that have been previously made. This is primarily due to the inherent uncertainty associated with IBNR calculations, which rely on historical data and actuarial assumptions. As new data becomes available—such as updated claims information or changes in reporting trends—this additional context can lead to revisions in the estimates.

Specifically, the introduction of new information can result in a significant deviation from prior estimates because it may reveal trends, patterns, or underlying issues that were not apparent before. For instance, if claims are reported at a faster rate due to recent legislative changes or shifts in the economic environment, this can increase the estimated amount of reserves needed. Conversely, if claims are discovered to be lower than expected due to improved risk management practices, estimates may be reduced.

The nature of IBNR reserves is that they are continuously evolving as insurers learn more about the claims that will eventually be made. Therefore, the presence of new information can lead to adjustments that move estimates away from previous projections, reinforcing why this choice accurately captures the impact of new information on IBNR development.