What is Incurred claim ratio meaning and How to Calculate Incurred Claim Ratio in Health Insurance?

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Incurred claim ratio is one of the most critical aspects of buying health insurance. Let us understand more about it and the formula to calculate it in your medi-claim plan.

Health insurance is one of the most important products of insurance that you will ever buy in your lifetime. For, it secures the health and life of you and your loved ones. It is only imperative then to consider all the various aspects associated with it while purchasing one. The incurred claim ratio is one such important factor for consideration in a health insurance policy. Let us understand in detail all about the incurred claim ratio in health insurance.

What is the Incurred claim ratio?

Incurred Claim Ratio or ICR is also sometimes referred to as Claim Incurred Ratio. The incurred claim ratio meaning states that it is the ratio of claims settled or paid by the health insurer to the total premium received from the policyholders during a given financial year.

In other words, the health insurance incurred claim ratio is actually a means to assess the actual performance of the insurance company. By measuring the proportion of ICRs of a health insurer, it can be determined how prompt the company is in settling claims received from the insured. Based on that, one can choose to invest in the insurance company.

Incurred Claim Ratio Formula

Now that we know that incurred claim ratio is such an important yardstick to measure the actual performance of a health insurance company, let us learn a simple formula to calculate it.

Incurred Claim Ratio (ICR) = Total Claims Filed / Total Premium Collected

Let us understand this simple calculation with the help of an example. An insurer has an ICR of over 100%. This simply means that against every Rs. 100 collected by the insurance company as premium from the insured, the company is paying claims worth over Rs. 100. This means that the insurer has a high ICR.

Difference Between Incurred Claim Ratio and Claim Settlement Ratio

The two terms are often confused with one another. We already learned above that the ICR refers to the total number of claims settled or paid by the insurer in proportion to the total amount of premium it received during a given financial year. On the contrary, Claim Settlement Ratio or CSR refers to the total number of claims settled or paid by the health insurance company in proportion to the total number of claims it received during a given financial year.

Health insurance experts suggest that it is better to invest in an insurer that has a moderate ICR but has the reputation of having a higher CSR in the market. The higher CSR a company has, the more prompt it is in settling claims received and the better for the policyholder.

Role of Incurred Claim Ratio in Choosing the Best Health Insurance Policy

Since ICR plays a key role in health insurance, it is important to understand how it can actually help a prospective policyholder in opting for the right health insurance plan. Look out for the following aspects when choosing a mediclaim policy:

• When the ICR is higher than 100%, it implies that the insurance company has a higher proportion of claim settlement over the total amount of premium received that year. However, this is a situation of loss-making for the company which inherently points to a possibility of more claim rejections in the future (when the company might run into financial losses). It is therefore best to avoid buying health insurance from such insurers.
• When a company’s ICR is between 50 and 100%, it implies that the company has an average rate of claim settlement over the total amount of premium received in a given financial year. It therefore reflects on the financial soundness of the insurer in settling claims. Such companies indicate signs of stable claim settlement in the future as well and are therefore considered good for investment.
• When the ICR is lower than 50%, it means that the company is rejecting more claims received over the total premium. While it may be a profitable situation for the insurer, it definitely does not look good for its policyholders. It is best to avoid investing in such a company since it may pass lesser claims in the future.

What is an Ideal Incurred Claim Ratio of a Health Insurance Company?

We studied above what it means for a health insurance company to have different percentages of the ICR and how it bodes for the insured. By looking at the above data, it can be well said that a company which has a moderate or average ICR is by far one of the best ones to choose for investing in a health insurance plan. This is to say that if the insurer has an ICR ranging between 70 and 90%, one can easily go ahead with that company for health insurance investment.

Does the Incurred Claim Ratio Depend on the Age of the Insurance Company?

Since every company takes time to collect premiums from its policyholders, the age of a company does contribute to its ICR ratio. For instance, a start-up may take some more time than a well-established firm to collect premium and may therefore have a lesser ICR relatively.

Read More: What is Incurred Claim Ratio

Summing Up

Both the ICR and CSR can be considered as appropriate yardsticks to measure or evaluate the performance of a health insurance company. It is generally believed that one should opt for an insurer with a moderate ICR but a higher CSR because it bodes well for the future of its policyholders. A company that settles a high number of claims over the ones received is definitely more likely to perform better in the future. Similarly, a company that has an average ICR reflects well on its financial soundness in the coming future. Hence, both are ideal for health insurance investment.

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Nov 18, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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