Incurred Claim Ratio in Health Insurance

Incurred Claims Ratio (ICR) is a commonly used metric in the health insurance industry. It denotes the proportion of claims incurred against the premium earned by the insurer during a financial year. It helps evaluate the insurer's financial stability and its efficiency in paying claims.

A very low or very high ICR may indicate financial imbalance for the insurer. This can affect the insurer’s long-term claim management and pricing strategy. Therefore, it makes sense to opt for a company that maintains a balanced ICR level as it translates into consistency. An ICR between 70% and 90% is often considered balanced in the health insurance industry.

Health insurance Incurred Claim Ratio is the total claim amount an insurer incurs divided by total premiums it receives in a financial year. The result is then multiplied by 100 to find out the percentage.

An optimum ICR balance usually specifies the potential of the insurer to manage claims in a financially stable condition. Having a detailed understanding of ICR helps policyholders evaluate insurers more effectively.

To evaluate the Incurred Claim Ratio (ICR), make sure to consider all the factors that impact its calculation. The primary ones include claims paid and the premiums received by the company. However, you should also consider the following factors while computing the Incurred Claim Ratio (ICR):

• The volume of claims settled over a particular time frame
• Efficiency of claims management structures
• Disparities in healthcare expenses and trends of usage
• Adequacy of premiums charged to fulfil its underwriting to deal with claims
• Total volume of premiums earned during that same time frame
• Assessment with industry standards
• Classification of claims based on type and severity
• Long-term feasibility and financial well-being of the insurer

You can check the Incurred Claim Ratio on IRDAI’s official website. It is also available on every insurance company's website. The formula for calculating the ratio is (Total Claims Incurred / Total Premiums Earned) × 100.

An ICR that ranges between 70% and 90% is generally considered the best incurred claim ratio. It signifies that the insurer has satisfactory financial stability to settle claims. Any imbalance in ICR, whether very high or too low, ideally shows the financial burden on the insurance company. This can cause stricter claim approvals or difficulty in achieving desired profits.

Before choosing an insurer, it’s important to understand the difference between Claim Settlement Ratio and the Incurred Claim Ratio. Claim Settlement Ratio (CSR) determines the insurer’s efficiency to settles claims. It reflects how reliable they are and the quality of their service .

Incurred Claim Ratio (ICR) shows the proportion of total claim amount incurred (paid and outstanding) against the premiums collected. This shows how financially stable the insurer is.

The main differences between CSR and ICR are explained in the table below:

The Incurred Claim Ratio (ICR) directly influences health insurance premium pricing. This is because it shows the proportion of premiums an insurer spends on claims compared to the premiums it collects. If the ICR remains high for a long period, the insurer may increase premiums to manage higher claim costs.

On the other hand, a balanced ICR may help insurers maintain stable premiums and policy benefits. A balanced ICR may help insurers maintain sustainable pricing and policy benefits. Ideally, the ICR should be between 70% and 90% as it signifies efficient claim settlement while maintaining long-term sustainability.

You should not rely only on Incurred Claim Ratio (ICR) to select a health insurance policy. ICR ratio helps to determine the overall financial strength and claim-payment capacity of the insurer. However, it cannot help judge the nature of the policy.

You should also consider other factors while buying a health insurance policy. Some of these include coverage, waiting period, room rent capping, hospital network, customer service quality, and so on.

Incurred Claim Ratio (ICR) helps policyholders understand an insurer’s claims experience and financial balance. It can be a useful factor while comparing health insurance companies.

However, ICR should not be considered in isolation. You should also evaluate coverage benefits, claim settlement record, hospital network, exclusions, and customer service before choosing a health insurance plan.