What is the Incurred Claim Ratio in Health Insurance?

When you buy health insurance, one question you should ask is if the insurer you have chosen is financially doing well. This is important because insurers who are stable and doing financially well are more likely to settle your claims in the future. An important metric which measures the financial health and stability of an insurance company is the Incurred Claim Ratio (ICR).

What is the Incurred Claim Ratio in Health Insurance?

Incurred Claim Ratio (ICR) = Net Incurred Claims / Net Premiums Earned. 

So it indicates how much a company pays as claims in a year out of premiums which it earns during the same period. An ICR of more than 1 indicates that the insurer paid more amount as net claims in a year than the net amount of premiums it earned during the same period. This is not a desirable situation for a health insurer and its customers as it indicates that the insurer made a loss during the year which could compromise its ability to settle claims in future. In an ideal situation, a health insurer’s ICR should fall somewhere between 60% to 80%. An ICR of less than 50% is also not good as it indicates that the insurer’s plans are overpriced. Such insurance plans would not sell well in the market and would not be able to grab a sizable market share in the long run. 

How to Calculate Incurred Claim Ratio for a Health Insurance Company?

Incurred claim ratio of a health insurance company is measured by dividing the net amount of claims incurred by a company by net premiums earned by the company during the same period. Every health insurance company in India has to declare its incurred claim ratio along with other parameters on a quarterly basis. You can find these numbers in the public disclosures made by each insurance company.  The links to these public disclosures are given on IRDAI’s website. Alternatively, you can also find a public disclosure section on each insurers’ website.

Incurred Claim Ratio of Top Health Insurance Companies in 2024

To check out the incurred claim ratio of each insurer, we headed to the public disclosure section of each of their websites.  Here are the Incurred Claim Ratio numbers of top health insurers in India taken from NL-20 for the FY 2023-24.

Other Things to Consider When Checking Incurred Claim Ratio

Combined Ratio – Incurred claims ratio tells you about the financial standing of a health insurance company but gives you an incomplete picture. It does not consider the expenses incurred by the company. If you want a better assessment of financial stability of an insurance company, check out its Combined Ratio. Combined Ratio (CR) = (Net Incurred Claims + Expense of Management) / Net Premiums Earned

Claim Settlement Ratio (CSR) – Incurred claim ratio measures the financial stability of a company but it does not tell you anything about the reliability and trustworthiness of the insurer. A high Claim Settlement Ratio indicates how good a company is in settling claims.

Time Taken to Settle Claims – It is crucial to know how prompt an insurer is in settling claims. An ideal situation would be where the most number of claims are settled within 1 month by the insurer.

Summary

Incurred claim ratio is an important metric as it measures the net claims paid by an insurer out of net premium earned during the same period. A low ICR indicates good financial standing of the insurer and is desirable. To get a better picture of an insurer’s performance, check out other parameters such as combined ratio and claim settlement ratio as well.

Key Takeaways

1. Incurred claim ratio measures the amount of net claims an insurer incurs in a year out of net premiums it earns during the same period.
2. Incurred Claim Ratio (ICR) = Net Incurred Claims / Net Premiums Earned. 
3. ICR measures the financial standing of an insurance company and its ability to settle claims in the long run.
4. While a low ICR is desirable, an ICR of 60% to 80% is considered to be ideal.
5. Insurance companies publish these numbers on a quarterly basis under public disclosures as mandated by IRDAI.
6. To get a better assessment of an insurer, you need to look beyond ICR. You can check out other parameters such as combined ratio, claim settlement ratio, time for claim settlement etc.