IRDA Incurred Claim Ratio of Health Insurance in India

ICR (Incurred Claim Settlement) in insurance is calculated by dividing the total number of claims already paid by the premiums collected within a specific fiscal year. For example, if an insurance company receives premium of Rs.10 lakhs and resolves claims of an amount Rs.9 lakh, then ICR will be (Rs.9 lakh/Rs.10 lakh) x 100, which is 90%. 

Incurred Claim Ratio = Net Claims Incurred / Net Earned Premium

The total cost of all claims paid by a company divided by the total amount of premiums collected over the same time period is known as the "incurred claim ratio."

Incurred Claims Ratio for Health Insurers

Incurred Claims Ratio of Private and Standalone Health Insurers are given below - 

Where to Check Incurred Claim Ratio of an Insurance Company? 

The Insurance Regulatory Authority of India (IRDAI) releases the incurred claim ratio for all health insurance and general insurance companies by releasing the total Incurred Claim Ratio (ICR) and the separate ICR for different types of general insurance of the company. The individual can check the annual report of IRDAI to refer to the ICR for the health insurance of the insurer. 

What do Incurred Claim Ratios Mean?

Incurred Claims Ratio demonstrates a company's capacity to pay claims. If a company's ICR is greater than 100%, it means that the amount of money given away as claim is greater than the amount of money received as premium.

In such circumstances, the business may struggle to remain in business and may end up rejecting certain dubious claims, raising the price to better manage claims, or changing their product entirely. 

If a company's ICR is between 50% and 100%, it means that it has received more money in premium payments than it has paid out in claims. In these situations, the business generates money, demonstrating that it has not only created a high-quality product but also been successful in marketing it to clients and educating them on when and how to make claims. 

If the claim is less than 50%, the business is either barely issuing claims or is making comparatively significant profits. The fact that the business is making big profits is not necessarily a positive thing, either, as all health insurance providers ought to provide services that genuinely pay claims within the appropriate ranges.

When claims are minimal, clients who buy these products eventually realize that the health insurance coverage is expensive and/or has an excessive number of exclusions, and they switch to a better or more effective product. Therefore, the ICR's ideal value lies between 75% and 90%. 

What is the Difference Between Incurred Claim Ratio & Claim Settlement Ratio?

Claim Settlement Ratios and Incurred Claim Ratios are frequently misinterpreted or conflated. Basically, a claim settlement ratio is the proportion of settled claims to all claims submitted during a certain accounting period.

Therefore, if a company's claim settlement ratio is 90%, 90 of the 100 claims that were filed have been resolved. The insurance provider has either refused or is still processing the remaining 10%. 

What is ICR vs CSR in Health Insurance?

ICR (Incurred Claim Settlement) indicates the total amount of claims settled against the total premium collected in a year, thereby highlighting the insurer’s business and financial stability. While the CSR (Claim Settlement Ratio) indicates the number of claims settled against the number of claims raised in a year by tracking the claim settlement history. 

Note (Points to Consider)

While ICR is a fine yardstick with which the performance of a company can be measured, it does not tell the whole story. Following are the points to consider with regards to the ICR of a company.

1. Time taken for settlement of claims: While ICR is calculated by comparing the claims settled by a company against the collected premiums, the time taken for the settlement of claims in not considered. Hence, the insurer may have recorded a ratio between 90% and 95%, but the claim settlement process may still take as long as four to six months, making it a rather hassling experience for the individual. So basically, the customers will have to wait patiently for the settlement of claims while the insurer delays it while maintaining a healthy ratio at the same time.
2. Low earnings: Insurers who operate start-ups may not have earned a substantial amount of money through premiums initially in its first few years of operations, thus making the claims experienced relatively high. As a result, the ICR of the company will be more than 100% which means that the insurer is incurring losses since the claim incidence in the initial years may have been significantly higher.

Conclusion

For instance, Company A has an incurred claim ratio of 90% and Company B's ICR is 95%, most customers will likely opt for Company B as their ratio is higher. Though Company B has a higher ICR, factors such as claim settlement time, network coverage, and plan benefits should also be considered. While Company A may have a lower ICR but quicker claim resolution, which could be more beneficial and hence it is important to evaluate all aspects when choosing an insurer. 

Disclaimer: Premiums may vary depending upon factors like age, location and prevailing taxes/GST.