Incurred Claims Ratio (ICR) in Health Insurance

The Incurred Claims Ratio refers to the percentage of the total amount of claims paid by an insurance provider compared to the total premiums it has collected in a financial year.

In simple terms, it shows how much of the premium amount collected by the insurer during the year has been spent to pay the claims.

For example, if the ICR is 60%, it means that 60% of the premium collected by the insurer is used to settle claims.

• The ICR gives you an understanding of the insurer’s ability to settle claims. An unfavourable ratio might suggest poor financial health.
• Based on their financial health, insurance providers could increase their premium rates, adjust certain elements of their offerings, or implement stringent screening processes to maintain stability.
• By analysing the ICR percentage, you can gauge how efficiently the insurance company settles claims that are raised by its customers.

ICR is more than 100%

An ICR over 100% is not a positive sign.

It indicates:

• The insurance provider has paid more in claims than it has received in premiums.
• The company may be incurring losses and might not sustain its business in the long run.
• To rectify the numbers, the insurer may have to increase premiums, reduce benefits, or reject claims in the future.
• The insurer may have poor risk management practices or underwriting that results in higher claims.

ICR is less than 50%

An ICR below 50% may be beneficial for the insurance providers but not necessarily for the policyholders.

It indicates:

• The insurance provider has received a lot more in premiums than it has paid in claims.
• The insurance provider is not only financially stable but also profitable.
• It could mean the insurance provider is rejecting a large number of claims.
• The insurance provider may have a complicated claim settlement process that discourages or delays policyholders from raising claims.
• A conservative underwriting may be maintained, setting stricter criteria for claim approvals.

ICR is More Than 50% and Less Than 100%

This is the most favourable scenario that benefits both the insurance provider as well as the policyholder.

It indicates:

• The insurance provider is efficient in handling claim settlements.
• The health insurance plans are reasonably priced and offer the necessary features.
• Claim settlements are viewed positively by policyholders, and the execution is not overly stringent.
• It reflects a sound and stable future for the insurer.

The Insurance Regulatory and Development Authority of India (IRDAI) publishes the ICR for all health insurance companies in India. The Incurred Claim Ratio by IRDAI is published in its annual report each year.

However, you can also calculate it using the Incurred Claim Ratio formula.

The Incurred Claim Ratio can be calculated as a percentage by dividing the total amount paid as claim settlements by the total amount collected as premiums.

The incurred claim ratio formula is the total number of resolved claims divided by the premiums collected within one fiscal year, multiplied by 100.

Incurred Claim Ratio formula = (Net Claims Settled/Net Premium Collected) x 100

Example

Imagine that in one financial year, an insurance provider:

• Receives ₹20 Lakhs in premiums and
• Spends ₹15 Lakhs on resolving claims

The Incurred Claims Ratio is calculated as follows:

• ICR = (₹15 Lakhs/₹20 Lakhs) x 100

Therefore, the company's ICR for that year will be 75%.

This means that 75% of the premiums collected by the insurance provider were used to settle the claims registered during the year.

Higher ICR

If the Incurred Claims Ratio is extremely high (over 100%), it means the company is spending more in settling claims than the premiums it has collected. This indicates that the company may be incurring losses. To manage this scenario, the company might increase the premiums in the future.

Lower ICR

If the ICR is extremely low (below 50%), it means the company is making good profits and paying fewer claims. They might lower the premiums in this case. While the premiums may be lower, if the company is actually not settling claims promptly, then it may not add value to the policyholders.

Moderate ICR

If the ICR is maintained at a moderate level (between 50% and 100%), it means that the company is financially stable and efficient in settling claims. In this case, premiums are fairly priced, higher for individuals with greater health risks and lower for those who are healthy.

While the Incurred Claim Settlement Ratio is an important metric to assess the performance of health insurance companies, there are a few aspects to keep in mind.

Claim Settlement Time

An ICR in the range 50% to 100% is considered good. However, to achieve an ICR in health insurance in this range, some insurance providers might record the claims for the financial year without actually paying them.

They might show that claims are registered, but it could take days or even months to process and settle them. Therefore, consider also the time taken by the insurance provider to settle claims when evaluating their performance.

New Participants

Newly established insurance providers may not collect large premiums initially. If they have to pay out claims during this period, the amount paid in claims is higher than the premiums collected. This results in a higher ICR. However, it does mean that the insurance provider is not reliable.

As discussed in the previous section, ICR in health insurance alone may not provide a complete picture in certain scenarios.

Here are a few key factors that you can consider while evaluating health insurance providers. Whether you are purchasing individual health insurance, a family floater policy, or health insurance for parents, these factors can help you make a well-informed decision.

• Brand Reputation - If the insurer has established a strong brand reputation and earned the trust of policyholders over the years, it can be a reliable option.
• Number of Policyholders - Determine the insurer’s customer base and how efficiently they have been managed over time.
• Customer Reviews and Feedback - Review customer feedback on policy management, claim settlement experience, and customer service to understand their experience with the insurance provider.
• Policy Options and Coverage Features - Assess the product range offered and how they have been customised to meet the specific needs of the policyholders.
• Claim Settlement Ratio - It is the ratio of claims settled against claims received by the insurer. We will discuss this in more detail in the next section.
• Network of Hospitals - Check the insurer’s network of empanelled hospitals across India for cashless treatment benefits.

When comparing insurance providers, the most common metric often confused with the Incurred Claims Ratio (ICR) is the Claims Settlement Ratio (CSR).

The Claims Settlement Ratio determines the number of claims settled by the insurer as against total claim requests received.

Here is a quick comparison of the two metrics:

Incurred Claims Ratio of health insurance companies is a key parameter to evaluate their performance. It helps in choosing a reliable insurance provider. An ICR in the range 50% - 100% is considered good.

However, it should not be the only factor when selecting a suitable insurance provider. Consider other factors, such as brand reputation, customer feedback and claim settlement ratio to make a wise decision.

TATA AIG has been serving customers for 24 years, with over 5Cr+ customers from inception, and has established over 12,000 network hospitals across India. We offer a wide range of health insurance plans that can be customised to your specific healthcare needs.

Explore our health insurance plans today and secure a healthier tomorrow!