Incurred Claim Ratio of Health Insurance Companies in India

When it comes to choosing a health insurance company, various factors are used to ascertain the stability of a company. Incurred claim ratio is one of the metrics commonly used by people to determine the ability of a company in paying its insurance claims. The Insurance Regulatory and Development Authority of India (IRDAI) releases the data for incurred claim ratio for health insurance companies every year. The latest available data is for the financial year 2016-2017.

What is incurred claim ratio?

Before we check the data, we must know what exactly is incurred claim ratio. Incurred claim ratio refers to the total value of claims paid by a company against the total premium amount collected. It is a percentage value that can be calculated using the following formula:

Incurred claim ratio = total claims incurred/total premiums earned

This value is normally used to know the stability of an insurance company. For instance, if the insurer’s incurred claim ratio is higher than 100, it means that the company is settling more money in claims compared to the premiums collected. In other words, the company is losing money. When a company’s claim ratio is consistently higher than 100, it may not have enough profit to sustain in this field.

On the other hand, if the company’s incurred claim ratio is way less, it could mean that the company is either not incurring too many claims or not settling its claims. When an insurance product is poorly designed, it may not deliver the intended benefits to customers. In such cases, the incurred claim ratio will be way too low. Hence, low incurred claim ratio need not necessarily mean that a health insurance company is good. The key is to choose a company with a balanced level of incurred claim ratio. Most private health insurance companies have incurred claim ratio between 75 and 90.

With the proper understanding of incurred claim ratio, customers can choose the right company that meets their expectations. Anything between 50 to 100 indicate that the company is making profits and meeting the expectations of its customers.

Incurred claim ratio of insurance companies

The incurred claim ratio of popular health insurance companies can be given in the following table. The previous year’s value is given alongside for comparative purposes.

Incurred claim ratio of Private Sector Health Insurers

Incurred claim ratio of Private Sector Standalone Health Insurers

Incurred claim ratio of Public Sector Health Insurers

Things to consider

The above table provides comprehensive details about the incurred claim ratio of an insurance company. Certain new start-up insurance companies may not have substantial earnings as they are still growing in the market. As a result, their incurred claim ratio was higher than other companies. Public sector insurers offer various schemes on extremely low premiums or zero premiums for people belonging to below poverty line families. As a result, their claim ratios are typically higher than that of private firms in the market.

Difference Between Incurred Claim Ratio and Claim Settlement Ratio

Claim settlement ratio is basically the number of claims that have been solved by the insurer in the financial year, but it doesn’t necessarily mean that the payout was made to the policyholder, as the insurer has the right to reject claims due to several reasons. On the other hand, the Incurred Claim Ratio is the percentage of the claims that have been paid by the insurer plus the outstanding claims at the end of the year minus the outstanding claims at the start of the financial year.

The claim settlement ratio is basically the number of claims that have been made divided by the number of claims that have been solved. If the insurer received 200 claims in a year and solved just 100 claims, then the claim settlement ratio will stand at 50%.

Claim Settlement Ratio (CSR) = Number of claims settled/number of claims received

Incurred Claims Ratio = Paid Claims + Outstanding claims at the end of financial year – Outstanding claims at the beginning of the financial year.

How to understand the Incurred Claim Ratio

To easily understand the incurred claim ratio of the insurers, we’ve listed out different incurred claim ratio percentages and what they mean:

• If the Incurred Claim Ratio (ICR) is around 80%

If the ICR is around the 80% mark, it means that for every Rs.100 collected as insurance premium, Rs.80 is paid as a claim. This means that the insurer is making a profit of Rs.20 for every claim, which is an ideal situation for the insurer.

• If the Incurred Claim Ratio (ICR) is 120%

If the ICR is 120%, it means that the insurer is incurring losses as for every Rs.100 collected as a premium, Rs.120 is paid out as a claim, meaning that the insurer is losing Rs.20 for every claim.

• If the Incurred Claim Ratio is 40-50%

This means that the insurer is making massive profits as for every Rs.100 collected as a premium, Rs.40 or Rs.50 is paid out as a claim. While the insurer will be profitable, their stringent claim policies or high premium rates is not the best situation customers want to be in.

Conclusion

In health insurance, there is no one-size-fit-all solution for customers. There are various metrics to be considered when choosing a health insurance company. Incurred claim ratio is just one of the factors used to determine the financial stability of a company. Customers must also check the reputation of the firm in the market and other factors such as time taken for claim settlement before choosing the right insurer.

FAQs on Incurred Claim Ratio of Health Insurance Companies