Health Insurance has become a necessity in every household, especially after the COVID-19 pandemic. To purchase the right medical insurance policy, you must make sure to consider certain crucial factors. One such essential factor is the incurred claim ratio.
We can consider ICR as the benchmark for assessing the performance of an insurance company. ICR is the proportion of net claims paid by the insurance company against the net premium received by them in a financial year. This shows how efficiently an insurer settles its claims.
Every year the Insurance Regulatory and Development Authority of India (IRDAI) publishes updated information about the ICR of all the insurance companies.
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:
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 is divided by the total premium earned in a financial year. Therefore,
Annual ICR (%) = (Net claims paid annually/Net premium collected annually) x 100
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.
By now, you have a clear idea about what incurred claim ratio means. Now let’s take a look at a few statements that will provide you with a better insight with regard to ICR:
When ICR is 100% or above
When the ICR is between 50% to 100%
When the ICR is less than 50%
Here are some other factors that you must keep in mind about Incurred Claim Ratio:
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.
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.
“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.
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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.
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