USA Earned but unbilled / reported (EBNR / EBUB)


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Hello Accountant World!

My name is Nick and I work for a mid-size P&C Insurance company in Indiana. My boss tasked me with researching what the proper accounting treatment would be for "reporting policies". These would be policies whereby the total exposure is not definitively known at the inception of the policy but instead reported over the course of the policy. Most of the policies that are written by my company require the insured to send (one month in arrears) a monthly exposure report detailing total revenues, miles driven, or payroll figures and then we apply a predetermined rate based on historical experience etc. to estimate the annual premium amounts that ultimately get recorded.

The current policy we have in place is noted as follows:
  • Estimated annual premium is calculated at the policy’s inception by Underwriting (UW)
  • Estimated annual premium is divided by 12 to determine roughly the monthly premium. This estimate is used to enter a premium transaction called EBNR (Earned but not reported)
  • Written premium is not recorded on the policy with the exception of the EBNR calculation which is entered at the policy inception.
  • No unearned premium is recorded either
  • The insured will then report on a monthly lag their actual exposure which is recorded into the system as earned premium
  • Due to the above transactions, for reporting policies, written = earned
My question is - are there any other options for how we could go about recording these types of policies? Any information, or direction, is appreciated - if additional detail is required to answer the questions please let me know!

Thank you,

-Nick
 
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I'm a little confused here. Why wouldn't you report revenue if it were earned?

The best rule for revenue recognition is what is stated in the customer contract terms, but that doesn't always provide a definitive answer (in this situation the contract may simply state that the customer will be billed monthly based on exposure).

You can use estimates in recording unearned revenue, you would just need to make adjustments as necessary.

I'm not familiar with accounting practices for insurance policies but it seems to me like it would be similar to other "subscription" business models - the customer pays up front and Unearned Revenue is credited. Then monthly adjustments are made according to the exposure.

At the end of the term, you would simply make a final adjustment based on the total exposure, crediting Revenue if there's a balance due from the customer based on the original estimate or Debiting revenue if a refund is due.
 
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I think he's referring to work done that hasn't been invoiced yet. You can report this under Accrued Income.
 

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