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Claims Incurred but not Reported

20.9. Insurance companies are liable to meet claims arising from losses of the insured during the income year but not notified during that year. At the end of each year companies estimate claims which occurred during the year but likely to be made after the end of the year. Understandably, the delay in notifying claims varies according to the class of insurance business. With workers’ compensation and third-party insurance business, for instance, there may be a considerable time-lag between the occurrence of the injury, the manifestation of the symptom and of the extent of the injury suffered, and settlement of the claim. It is thus extremely difficult to calculate this provision accurately. The insurance industry as well as the Insurance Commissioner have been concerned with developing statistical techniques to enable the calculation of claims incurred but not reported to be made with greater precision.

20.10. Claims incurred but not reported have not until recently been submitted as deductions for income tax purposes. However, R.A.C.V. Insurance Pty. Ltd., in its return for the year ended 28 February 1971, sought a deduction in respect of claims reported after 1 March 1971 for accidents that had occurred during the financial year. In the assessment, the amount claimed was disallowed and the matter eventually became the subject of an appeal to the Supreme Court of Victoria.note A decision in favour of the company was given by Menhennitt, J. in June 1974 and by consent an appeal by the Commissioner was dismissed. While by the facts of the case the decision is limited to motor-car insurance and third-party insurance, the Commissioner has accepted the decision as applying to all general insurance companies. The decision is not expected to give rise to practical difficulties for the Commissioner and will undoubtedly be welcomed by the insurance industry.

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