Estimating IBNR (Incurred But Not Reported) Reserves Using Bornhuetter-Ferguson and Cape Cod Method : A Case Study of Life Insurance Company Anita Zahra Asdianti (a*), Lenny Suardi (b)
a. Faculty of Economics and Business, University of Indonesia
Jl. Salemba Raya No.4, Jakarta 10430
b. Faculty of Math and Science
Jalan Prof. Dr. Sudjono D Pusponegoro, Kampus UI Depok
Abstract
An insurance company needs to estimate its claim reserve carefully in order to anticipate the fluctuation of claims in the future. An Incurred But Not Reported (IBNR) reserve is a part of the claim reserve that estimates the claim value that has occurred but reported in the next period. IBNR reserve must be prepared by the insurance company. This paper aims to apply two methods in estimating the IBNR reserve, which are Bornhuetter-Ferguson, that was proposed by Bornhuetter and Pearl Ferguson and Cape Cod method that was proposed by Buhlman and Straub. These two methods are considered as the best practice and well-established method. In this paper, we also compare the performance of these two methods and evaluate the result so that the insurance company obtains a more accurate estimation of claim reserve. We use a short period of observation from newly established company. A monthly data of claims within the period 2018 to 2020 is used to obtain the empirical result of the study. The study found that IBNR claim reserves estimation with Bornhuetter-Ferguson method has closer value to the actual claim rather than the Cape Cod method. This can be concluded that Bornhuetter-Ferguson Method performs well for a claim with a short period of observation.
