Health insurance: What is the role of incurred claim ratio?

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The net claim paid by an insurance company against the net premium earned is referred to as the incurred claim ratio (ICR). It’s the total value of every claim divided by the total premium collected by the insurer during a particular time period. The Insurance Regulatory and Development Authority of India (IRDAI) declares the annual incurred claim ratio for health insurers in India. This information is also available on the insurance company’s websites and customers must run through these figures before deciding on buying the policy. It’s prudent to go with an insurer that offers a higher incurred claim ratio compared to the rest.

Importance of ICR

But what does a high incurred ratio symbolise? It shows the ability of the insurer to be able to pay off the sum assured at the time of claim filing. If the ICR of a particular company is 100% or above, it means the amount given by the insurer at the time of claim settlement was more than the collected premium. This is an unpleasant situation that can cause instability in the company. As a result, the insurer may either reduce their cost, raise the price to better manage it, or simply change their product features.

On the other hand, if the company’s ICR value ranges between 50% and 100%, it means the company was able to collect a higher premium than the amount given away as claims. This indicates profits for the insurer as it was able to sell a quality product to its customers and successfully avoided unwanted claims.

Meanwhile, if the company’s ICR is below 50%, it paints a rather grey picture for the customers. It means the company is either hardly settling any claims or is making unassumingly large profits. However, it’s critical to understand that a company’s profits have little to do with its absolute record of claim settlements. Sometimes, customers realise that a particular policy is turning out very expensive or the number of exclusions in the policy is unnecessary.  This can cause them to shift to another kind of insurance product. Hence, experts suggest that a perfect ICR value ranges between 75% and 90%.

Time taken for claim settlement

Another important thing to consider when analysing an insurance company’s ICR is the time taken for claim settlement. Customers must realise that while ICR may indicate a 90% record value, it doesn’t take into consideration the time taken for each settlement. Thus, your insurer may take up to 6 months to reimburse the amount and be of no use at the time of an emergency.

Moreover, incurred claim ratios are often confused with claim settlement ratios. The latter is primarily the ratio of settled claims to the total claims filed in a particular accounting period. Hence, if the claim settlement ratio of a company peaks at 90%, this is indicative of the fact that 90 claims out of the 100 have been successfully settled. The remaining 10% could either be pending or rejected by the insurance company.

Other factors are equally important

Besides, ICR is not the only parameter to judge the usefulness of a policy. Other factors including network hospital coverage, specific plan benefits, waiting period, fine print, etc. must also be considered when choosing a company as an insurance provider. The key is to compare the ratios and pay attention to the other important factors as well.