IRDA Incurred Claim Ratio of Health Insurance in India

How is the ICR Calculated in Health Insurance?

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."

• The data used for this calculation is based on audited financial statements of insurers submitted to IRDAI. 

Incurred Claim Ratio for Health Insurers

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

Note: It is advisable to refer to the latest IRDAI annual report for updated insurer-wise ICR before making a purchase decision.

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 Insurance Regulatory and Development Authority of India (IRDAI) publishes insurer-wise ICR data in its annual reports and handbooks, which are publicly available on its official website. 

•   The individual can check the annual report of IRDAI to refer to the ICR for the health insurance of the insurer.   

• It can also be checked through insurer disclosures, financial statements, and trusted insurance aggregator websites for easier comparison. 

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.

• It indicates that the insurer is paying out more in claims than it earns, which may impact profitability in the long term. 

• 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. 

• It does not necessarily mean the insurer is unsafe, but consistent high ICR over years may require closer evaluation by customers. 

• 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. 
• It is generally considered a balanced range, indicating both claim settlement ability and financial stability. 

• 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.
• It may also indicate stricter claim approvals or limited claim settlements, which policyholders should review carefully. 

• 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%. 
• However, ICR should not be the only factor, and it must be analysed along with claim settlement ratio, network hospitals, and policy features. 

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

• Claim Settlement Ratios and Incurred Claim Ratios are frequently misinterpreted or conflated.

• The claim settlement ratio (CSR) refers to the percentage of claims settled by an insurer out of the total claims received during a specific financial year. 

• 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%. 

• The key difference is that CSR focuses on the number of claims settled, while ICR focuses on the value of claims paid. 

ICR vs CSR in Health Insurance as per IRDAI

• 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. 

• The Insurance Regulatory and Development Authority (IRDAI) publishes both ICR and CSR in its annual disclosures, enabling customers to evaluate insurers from both financial and service perspectives. 

• A high CSR with a very low ICR may indicate smaller claim payouts, while a high ICR with moderate CSR may indicate higher claim values being settled. 

Key Points to Understand IRDA Incurred Claim Ratio

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.

• 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.
• It means an insurer may show a strong ICR but still take longer to process claims, affecting customer experience.  
• 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. 
• It is advisable to check claim settlement turnaround time and customer reviews along with ICR. 
• 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. 

• It is common for new insurers to have ICR above 100% in initial years due to lower premium base and higher claim ratios. 

• 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. 

• This should be analysed over multiple years to understand whether the insurer is stabilising or not.

How to Use ICR and CSR Together 

It is important that both ICR and CSR are evaluated together instead of relying on a single metric while choosing a health insurer. 

• A higher CSR (above 90%) indicates a strong claim approval rate. 

• An ICR between 70% and 90% reflects balanced financial health and claim payouts. 

• A combination of high CSR and moderate ICR is generally considered ideal for policyholders. 

It is also recommended to check other factors such as network hospitals, policy inclusions, exclusions, and customer grievance records before finalising a plan. 

Importance of Incurred Claim Ratio in Health Insurance:

The Incurred Claim Ratio (ICR) is an important metric that helps policyholders understand how effectively an insurance company utilises its premium income towards claim settlements. 

Reflects the financial health of the insurer: The ICR indicates the proportion of total premiums that an insurer spends on settling claims. A balanced ratio suggests that the company is financially stable and capable of managing its claim obligations efficiently. 

Helps evaluate claim payout trends: By analysing the ICR, individuals can understand how much insurer pays out in claims compared to what it earns. This helps in identifying whether the company is actively settling claims or maintaining a conservative payout approach. 

Assists in better decision making: The ICR acts as a supporting factor when comparing multiple insurance providers. It enables policyholders to shortlist insurers that maintain a healthy balance between premium collection and claim settlement. 

Indicates long-term sustainability: An insurer with a consistently moderate ICR is likely to sustain its operations without frequent premium hikes. Extremely high or low ratios may signal potential risks, making it important to assess this metric carefully. 

Final Thoughts on IRDA Incurred Claim Ratio of Health Insurance

• 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.

• However, choosing solely based on higher ICR may not always be the right decision.

• Though Company B has a higher ICR, factors such as claim settlement time, network coverage, and plan benefits should also be considered.

• It is essential to assess the overall service quality, claim experience, and policy features along with ICR. 

• 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.