How to Calculate Incurred Claim Ratio in Health Insurance

Health insurance is necessary today when medical expenses can burn a hole in your pocket. But how do you choose the right health insurance plan for yourself and your family?

There are many factors to consider, such as the coverage, the premium, the network of hospitals, the exclusions, and the co-payments. But there is one more factor that you should pay attention to: the ICR or the incurred claim ratio of the health insurance company.
 

Let us understand ICR in detail here.

What is the Incurred Claim Ratio?

ICR refers to the ratio of the net claims paid by the insurer to the net premiums collected in the given financial year. It shows how efficiently and effectively the insurer settles the claims made by its policyholders. The ICR is expressed as a percentage.

How to Calculate Incurred Claim Ratio?

You can compute this percentage using the following Incurred Claim Ratio formula:
 

 Annual ICR (%) = (Net claims paid annually / Net premiums collected annually) x 100

For example, if a health insurance company pays ₹50 crore as net claims and collects ₹60 crore as net premiums in a year, then its ICR is:
 

ICR (%) = (50 / 60) x 100

ICR (%) = 83.33%
 

This means that the company spends 83.33% of its premium income on claims and retains 16.67% as profit.

Why is the Incurred Claim Ratio Important?

The incurred claim ratio is important because it indicates the financial health and performance of the health insurance company. It also reflects the customer satisfaction and trust level of the insurer. However, a very high ICR (above 100%) may also mean that:

• The insurer is incurring losses and may not be able to sustain its business in the long run.
• The insurer may increase its premiums or reduce its benefits in the future to balance its finances.
• The insurer may have poor underwriting or risk management practices that lead to more claims.
   

On the other hand, a low ICR means that the insurer is paying fewer claims than collecting premiums, which may imply that:

• The insurer is profitable and financially stable.
• The insurer has priced its products higher than the market average or offers lower benefits.
• The insurer has strict or complex claim settlement processes that discourage or delay customers from making claims.
   

However, a very low ICR (below 50%) may also mean that the company is not paying even the genuine claim.
 

Therefore, an ideal ICR for a health insurance company should be neither too high nor too low but moderate and consistent. A moderate ICR is between 50% and 80%.

How to Review the Incurred Claim Ratio of a Health Insurance Company?

The easiest way to check the incurred claim ratio of a health insurance company is to visit the official site of the IRDAI, which is the apex body that regulates and supervises the insurance sector in India. IRDAI publishes an annual report that contains various data and statistics about the performance of all insurance companies in India, including their ICRs.
 

You can access the latest annual report of IRDAI for free. Once you open it, read Chapter 4: Performance of Non-Life Insurers. You will find tables showing the ICRs of various categories of non-life insurers, such as public sector insurers, private sector insurers, standalone health insurers, etc. You can look for the name of your chosen health insurance company and see its ICR for the latest financial year and previous years.
 

Alternatively, visit the official website of your chosen health insurance company and look for its annual report or financial statements, where you may find its ICR mentioned. However, IRDAI's report may be more reliable and updated.

How Does the Incurred Claim Ratio Differ from the Claim Settlement Ratio?

While incurred claim ratio measures the amount of claims paid by an insurer in relation to its premium income, claim settlement ratio measures the number of claims settled by an insurer in relation to its total claims received.
 

Claim settlement ratio (CSR) is the percentage of claims approved and paid by the insurer out of the total claims the customers file in a financial year. It shows how responsive and reliable an insurer is in settling your claims.
 

For example, if an insurer receives 10,000 claims and settles 9,000 of them in a year, then its CSR is 90%. It means that out of every 100 claims filed, 90 are settled, and 10 are rejected.

Tips to Choose a Health Insurance Plan Based on ICR

Now that you know what the ICR is and how to check it, here are some suggestions to help you choose a health insurance investment plan based on it:

• Refrain from relying solely on ICR to make your decision. Consider other factors, such as coverage, premiums, network hospitals, exclusions, co-payments, and waiting periods.
• Compare the ICRs of different health insurance companies offering similar plans and benefits. Choose a company that has had a moderate and consistent ICR over several years.
• Avoid choosing a company with a very high or very low ICR, as it may indicate financial instability or poor customer service.
• Read the terms and conditions of the policy carefully and understand the claim settlement process and requirements. Follow them diligently to avoid any rejection or delay in your claim.

Conclusion

ICR is a valuable indicator to measure the performance and reliability of a health insurance company. It shows how well the insurer manages its claims and premiums. A moderate and consistent ICR is desirable for a health insurance company, indicating financial stability and customer satisfaction. However, ICR is one of many factors to consider when choosing a health insurance plan. Before making your final decision, always compare other factors, such as coverage, premiums, network hospitals, exclusions, co-payments, waiting periods, etc.