Incurred Claims Ratio (ICR) in Health Insurance – Definition, Calculation, Importance

What is Incurred Claim Ratio? - Definition

Incurred Claim Ratio (ICR) in Insurance is the ratio of Value of Net Claims Settled by an Insurance Company against the Total Premiums collected by the Insurance Company during a particular year. The ICR denotes the percentage of premiums that the Insurance Company pays out in the form of Insurance Claims.

For Example, if the Incurred Claim Ratio is 92%, it means that the Insurance Company is paying out Rs92 in Claims for every Rs100 it collects in the form of premiums. Incurred Claim Ratio is an important factor to consider when choosing a Health Insurance Policy as it demonstrates the insurer’s ability to settle Insurance Claims. The Insured should compare the Incurred Claims Ratio amongst different Insurance Companies when selecting a Health Insurance Policy. Every year, the Insurance Regulatory and Development Authority of India (IRDAI) releases the Incurred Claims Ratio for all general and health insurance providers in its annual report. But keep in mind that, even though the ICR may be an important factor when purchasing Health Insurance, it isn’t the only factor.

How to Calculate Incurred Claim Ratio?

The formula for calculating Incurred Claims Ratio is as follows: Incurred Claims Ratio = (Total Value of Claims Settled by the Insurance Company/The Total Value of Premiums Collected by the Insurance Company) x 100 For example, if an insurance company may receive Rs1 Crores in premiums and pays out Rs85 lakhs in the form of Claims, the company’s Incurred Claims Ratio is (85 lakhs/1 Crore)*100 = 85%

What is the importance of Incurred Claims Ratio?

A high Incurred Claims Ratio denotes the following:

1. Consistency: If the Insurance Company’s Incurred Claims Ratio is consistent over the years, it indicates that the company has been fairly consistent in paying out claims. Thus you can trust the Insurer’s ability to settle claims in a fair and efficient manner.
2. Ability to Pay Claims: A Health Insurance Company with an Incurred Claims Ratio which is consistently below 100% means that the company is consistently generating profits on its health insurance portfolio. This means that the company is likely to honour its claim in the future as well. CSR Ratio: An Insurance Company with an Incurred Claims Ratio in excess of 100% is making losses on its health insurance book. This means that its ability to pay out claims is likely to get impacted if it runs out of funds.

While Incurred Claims Ratio is an important metric to consider when purchasing a Health Insurance Policy, it is also important to consider other factors such as Claim Settlement Time, Claims Experience, Network Hospital list when purchasing a Health Insurance Policy. You can take the assistance of an experienced Insurance Broker who can assist you in purchasing a Health Insurance Policy based on your requirements.

Incurred Claims Ratio of Health Insurance Companies for Year Ending March 2024

The Incurred Claims Ratio of various Health Insurance Companies for the year ending March 2024 is as follows:

For FY24, Health Insurance Companies such as HDFC Ergo, ICICI Lombard and Bajaj Allianz General Insurance had an Incurred Claims Ratio in excess of 80%. Amongst the PSU General Insurers, Companies such as New India Assurance, United India General Insurance and the Oriental Insurance Company had an Incurred Claims Ratio exceeding 100%. Amongst the Standalone Health Insurers, Aditya Birla Health Insurance Company had the highest Incurred Claim Ratio of 72.98%

What is Claim Settlement Ratio?

Claim Settlement Ratio in Insurance is defined as the number of Claims Settled by the Insurance Company vs the number of Claims filed in a financial year. An Insurance Company with a Claim Settlement Ratio of 98% means that the Insurance Company settles 98 Claims out of every 100 Claims filed by the Insured.

What is the difference between Incurred Claims Ratio and Claim Settlement Ratio?

The main difference between Incurred Claims Ratio and Claim Settlement Ratio is that Incurred Claims Ratio considers the value of the Insurance Claim Amount settled by the Insurance Company while Claims Settlement Ratio considers the number of Claims settled by the Insurance Company.

Conclusion

In a nutshell, a Health Insurance Company’s Incurred Claim Ratio is one of the many factors you should consider when purchasing health insurance plans. To make an informed decision, review the ICR of each Health Insurance Provider from the IRDAI annual report. If you wish to know more about Incurred Claims Ratio in Health Insurance, please reach out to us via email at insurance@qian.co.in or call us on 022-35134695. We would be glad to assist you.