What are incurred losses?

Incurred losses refer to losses that have occurred within a specific time frame, accounting for both reported and unreported claims during that period. This concept is essential in insurance and adjusting because it helps in assessing the total cost associated with claims that may arise from policies issued by the insurer.

When determining incurred losses, insurers consider claims that have happened, regardless of whether they have been finalized or paid out. This measurement allows for a more accurate evaluation of an insurance company's financial health and potential liabilities. By understanding incurred losses, adjusters can better project future losses and adjust reserves accordingly, which is critical for maintaining the financial stability of an insurance entity.

For instance, if an insurance company is evaluating its performance over the past year, it will look at all claims that occurred during that year, providing a comprehensive view of their obligations to policyholders.