What Is Incurred Claim Ratio In Health Insurance – Its Formula And Why Is It Important
Every year the Insurance Regulatory and Development Authority of India (IRDAI) publishes updated information about the ICR of all the insurance companies.
Significance of ICR or the Claimed Incurred Ratio
The incurred claim ratio acts as a trust factor for an investor. Mentioned below are statements that highlight the significance of this ratio in health insurance:
- It shows the ability of a health insurance company to pay the approved claims.
- A higher ICR means a higher success rate in meeting claims. Therefore, it is more sensible to put your trust in an insurance company that offers a moderately high ICR.
- If an insurer has a high ICR, it is extremely likely that you won’t face any hassle while availing cashless treatment in a network hospital.
How to Check the Incurred Claim Ratio of an Insurance Provider?
Individuals wanting to know the incurred claim ratio of insurance companies can check it from the official annual report of IRDAI (Insurance Regulatory and Development Authority of India). IRDAI publishes the incurred claim ratio of public, private and standalone health insurance companies in its annual report. Individuals can access the annual report free of cost from the official website of IRDAI.
How to Calculate Incurred Claim Ratio?
Now that you know what the incurred claim ratio is, it will be easier for you to understand its calculation. ICR is the percentage obtained when the total claims settled are divided by the total premium earned in a financial year. Therefore,
Annual ICR (%) = (Net claims paid annually/Net premium collected annually) x 100
Difference between Incurred Claim Ratio and Claim Settlement Ratio
Incurred Claim Ratio is the cumulative amount of every claim calculated against the total amount of premium collected in a financial year. In comparison, the claim settlement ratio is the total approved claims calculated against the total number of claims the insurance company receives.
The higher the CSR, the higher chances of a claim settlement. However, an insurance company must maintain an average ratio ranging from 50% to 100%.
CSR does not consider the time taken for claim settlement. Whereas the time taken for claim settlement is essential for calculating ICR.
How does ICR Help You to Choose the Right Health Insurance Plan?
Here’s how ICR provides you with a better insight into health insurance:
1. When ICR is 100% or above
- The health insurance company’s money for the claim settlement is higher than the net premium received in a financial year.
- The insurance company is facing significant loss.
- The threat of claim rejection is high.
2. When the ICR is between 50% to 100%
- The total premium collected is moderately higher than the total amount paid for claim settlement.
- The insurance company is financially capable of settling claims.
- It is highly likely that the insurance provider will be able to keep honouring your future claims.
3. When the ICR is less than 50%
- The net premium collected is significantly higher than the total amount of claims approved.
- An ICR of less than 50% is favourable for insurance providers with regard to profitability. But policyholders might not benefit as such a figure indicates that this company rejects a large number of claims.
Ideal Incurred Claim Ratio Offered by Health Insurance Policies in India
It is difficult to provide a number which can be considered a good Incurred Claim Ratio. However, experts have tried to answer this question and according to them an ICR anywhere between 70-90% is an ideal ICR. It means that for every Rs.100 collected as a premium, the insurance company is paying Rs.70 – Rs.90 for claim settlement.
In such a situation the insurance company is making a profit of Rs. 10-Rs. 30 for every Rs.100 received. This is a win-win situation for both insurance providers as well as policyholders as the company is profitable while at the same time claim rejection rates are not high.
Things to Consider Remember Regarding Incurred Claim Ratio
Here are some other factors that you must keep in mind about Incurred Claim Ratio:
1. The time taken for the settlement of a claim
ICR is determined by calculating the total sum paid for claims against the net premium collected. However, it does not specify the duration in which the claim will be settled within a year. An insurance company might have an ICR between 75% and 85%, but this does not guarantee a quick claim settlement. It might take months to reimburse the amount.
2. Might not be ideal for start-ups
A relatively new company might not be successful in collecting adequate premiums in the first few years. So the amount paid as claim settlement might exceed the total premium earned in a financial year. In such a scenario, the ICR will be beyond 100%. Thus, the policy buyers might not get an accurate picture.
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Final Word
“Health is wealth” is a golden saying. This is especially true in the present times of growing ailments. You ought to choose the best health insurance company for the best coverage in crucial times. Taking this into account, make sure to check the Incurred Claim Ratio of insurance providers along with other aspects, such as maximum coverage amount, network hospitals, etc., before buying a policy. If you want to consider health insurance plans from companies such as Navi, then download the Navi App from the google play store today. Navi provides support from 10,000 plus network hospitals in over 400 locations all over India and premiums start from as low as Rs.241 per month.
FAQs
Ans: The ideal range for ICR is 70% to 90%. This means that your insurance company is making a significant profit. At the same time, the chances of claim approval are higher. Thus, you should choose a health insurance company that has an ICR of 70%-90%.
Ans: There is no certainty that the ICR will remain consistent over the years. ICR depends on the net claims paid and the net premium collected in a year. Accordingly, the values might not be constant every year.
Ans: As a matter of fact, the age of operation of an insurance company affects the ICR. A company that has operated for a long time is more likely to collect a higher value of the premium. This balances the net claim value paid. Typically, the company will have a moderately high ICR. It is comparatively safer to buy policies from such insurance providers.
Ans: ICR is a more accurate indicator of a company’s ability to settle claims than CSR, especially when it comes to health insurance. This is because ICR considers the duration in which the company meets the claims.
Ans: After filing a claim, you have to submit the required documents as specified by the insurance provider. After thorough inspection and authentication, your claim is approved or rejected by the insurance company based on its terms and policies.
Ans: Yes, you must consider the ICR of insurance companies before purchasing a health insurance plan. It is a good indicator of the value of claims settled in proportion to premiums received. ICR gives an idea about the sincerity and efficacy of insurance companies with regard to claim settlement. That said, ICR is not the only factor that one should take into account when buying a health insurance policy.
Ans: Yes, you must seriously think about switching their existing health insurance policy if the incurred claim ratio is too high (more than 100%). This is because a very high ICR implies that the insurance provider is making serious losses. In order to improve their situation, they may start rejecting more claims in future which can be detrimental for policyholders.
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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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