Incurred Claim Ratio in Health Insurance: Key Metrics for Assessing Health Insurance Performance

A comprehensive guide to understanding the incurred claims ratio, and how it is calculated.
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Know Everything about Incurred Claims Ratio (ICR) in Health Insurance
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3 mins
10 January 2024

Health insurance is a must-have for every individual in today’s world. With the increasing cost of healthcare, it has become difficult for people to afford medical treatments without insurance. However, simply buying health insurance is not enough. One must also understand the various terms associated with health insurance, such as the Incurred Claim Ratio (ICR) to assess the performance and reliability of insurance providers. This article highlights everything you need to know about the incurred claim ratio in health insurance.

What is the Incurred Claim Ratio (ICR)?

The Incurred Claim Ratio (ICR) is a measure of an insurance company's profitability. It is the ratio of the total amount of claims paid by the insurer to the total amount of premiums collected from policyholders during a fiscal year. Simply put, ICR represents the percentage of the insurance premium that the insurer must pay out as claims to its policyholders. This ratio is expressed as a percentage and serves as an indicator of an insurance company's ability to manage claims effectively.

What things to consider while calculating Incurred Claim Ratio?

When calculating the Incurred Claim Ratio (ICR), several factors must be considered:

  • Total claims incurred during a specific period.
  • Total premiums collected during the same period.
  • Breakdown of claims by type and severity.
  • Impact of reinsurance arrangements.
  • Factors affecting claim frequency and severity.
  • Adequacy of pricing and underwriting practices.
  • Efficiency of claims management processes.
  • Changes in healthcare costs and utilisation patterns.
  • Comparison with industry benchmarks.
  • Long-term sustainability and financial stability of the insurer.

How do you calculate the incurred claim ratio?

To calculate the incurred claim ratio, we need to consider the total amount of claims paid by the insurer and the total amount of premiums collected during a fiscal year. The formula for calculating ICR is:

ICR = (Total claims paid / Total premiums collected) x 100

For example, if an insurer paid Rs. 50 crore in claims and collected Rs. 100 crore in premiums during a fiscal year, the ICR would be 50%.

Also check: Health insurance companies in India

What is the difference between the incurred claim ratio and claim settlement ratio?

While both Incurred Claim Ratio (ICR) and Claim Settlement Ratio (CSR) are vital metrics for assessing the performance of health insurance companies, they measure different aspects of an insurer's operations. Let us delve into the distinctions between these two ratios:

Criteria

Incurred Claim Ratio (ICR)

Claim Settlement Ratio (CSR)

Definition

Represents the ratio of claims incurred to the total premium collected.

Reflects the percentage of claims settled against the total number of claims received.

Focus

Emphasises the financial aspect of claims management.

Highlights the efficiency and speed of claim settlement.

Purpose

Assesses the financial stability of an insurance company.

Measures the promptness and effectiveness of claim settlements.


What is the importance of the Incurred Claim Ratio?

The Incurred Claim Ratio (ICR) holds significant importance in evaluating the financial health and performance of health insurance companies:

  • Financial health: Indicates the insurer's ability to manage claims within premiums collected.
  • Sustainability: Helps assess the long-term viability of the insurer.
  • Risk management: Highlights effectiveness in underwriting and claims management.
  • Customer trust: Reflects the insurer's reliability in settling claims promptly.
  • Regulatory compliance: Meets regulatory requirements for insurers.
  • Competitive positioning: Influences consumer perception and market competitiveness.

Where can I find the Incurred Claim Ratio of an insurance company?

Each year, the Insurance Regulatory and Development Authority of India (IRDAI) releases the incurred claim ratio (ICR) for all general and health insurance companies. This regulatory body furnishes both the overall ICR for each company and distinct ICRs for various types of general insurance. Consequently, individuals can verify an insurance company's incurred claim ratio for health insurance by consulting the IRDAI's annual report.

Understanding these differences is crucial for policyholders to make informed decisions when selecting a health insurance provider.

In conclusion, understanding the incurred claim ratio is essential when choosing a health insurance policy. Insurers with a higher ICR indicate that they are financially stable and have a good track record of paying claims. On the other hand, a low ICR can signify that the insurer has a high number of claims, and its premium prices may increase in the future. Hence, before purchasing a mediclaim insurance policy, it is essential to compare the ICR of different insurers to make an informed decision that suits your needs and budget.

Frequently asked questions

What is a good incurred claim ratio?

An incurred claim ratio ranging from 80% to 100% is deemed reasonable, reflecting a harmonious relationship between premiums gathered and claims settled. A ratio falling below 60% might imply cautious underwriting practices, whereas figures below 100% typically signify profitability.

Why is incurred claim ratio important in health insurance?

Incurred claim ratio is important in health insurance because it allows customers to gauge the performance of insurance providers and make informed decisions about their policies. The ratio can be used as an indicator of the financial stability of an insurance company and their ability to pay out claims over time.

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