Context: insurance, actuarial science
Outstanding claims, along with unearned premiums, is a component of policy liability for an insurance company. Outstanding claims refer to the portion of the claims that have been incurred, but has not been paid.
A claim can be incurred but not paid for several reasons:
- A claim can be incurred (e.g. the accident happened), but has not been reported to the insurance company. This is commonly referred to as "incurred but not reported" or IBNR.
- A claim may be in the middle of assessment. An example is in motor insurance, where the amount of damage done to the vehicle needs to be assessed before the claim is paid.
- The claim may be in dispute and needs to be settled in court. This is extremely common in workers' compensation insurance.
Estimation of the outstanding claims liability is very similar to that of estimating IBNR. See IBNR for an explanation of how this amount is estimated.
An incorrect estimation of the outstanding claims liability can cause disastrous results for the insurance company. A recent example of this is with HIH, an Australian insurance company, which has collapsed due to their unusual methods in estimating and managing outstanding claims.