All you need to know about incurred claim ratio in your health insurance
Health insurance is a trending product that has created a buzz in the field of the insurance industry. While purchasing health insurance for the first time, you may experience some difficulties because you are a novice. Before buying a health insurance policy, you should try to get accustomed to some industry-oriented health insurance terms. Incurred claim ratio (ICR) is a quotidian term in this health insurance sector.
What is the incurred claim ratio?
The incurred meaning is the ratio of an insurer’s net claims paid against the total premiums collected. Every year, IRDAI publishes information on the incurred claim settlement ratio of health insurance companies. The incurred health insurance claim ratio implies a company’s ability to settle the claims of its policyholders. For example, suppose a company’s incurred claim settlement ratio of health insurance is greater than 100%. In that case, it portrays that the company has given more than the amount of money it received as a premium.
If an insurance company has an ICR between 50% -100%, this suggests the company has received more premium amounts than it has given away as claims to policyholders. In such scenarios, the company has made a hefty profit and produced good quality products. In addition, it helped policyholders to understand where claims should be made and where they didn’t get any reimbursement from the company.
On the other hand, if a company’s ICR value is less than 50%, it is making huge profits or hardly giving out claims to policyholders. So, if you are planning to purchase a health insurance policy, you should select a company with a higher incurred ratio but below 100%.
How to calculate the ICR?
Incurred claim ratio=total claims incurred by the insurance company/total premium amount collected from policyholders.
ICR plays a pivotal role in the success of an insurance company.
7 Important Things about Incurred Claim Ratio in Health Insurance
- Always consider the time taken to settle your claims
- Consider the products of the insurance company
- Lower Earnings
- If the ICR is less than 50%
- If the ICR is between 50-100%
- If the ICR is more than 100%
- The significance of the ICR
1. Always consider the time taken to settle your claims
A high incurred claim settlement ratio doesn’t imply that you will get your claim quickly from the insurer. If an insurance service provider has an incurred claim ratio between 90-95%, it doesn’t suggest that the claim settlement process is easy and quick. The service provider may take 4-6 months to settle your claim. So, you have no other options than to wait patiently for your claim settlement. Sometimes, insurers delay the settlement process to maintain a healthy incurred claim ratio at the same time.
2. Consider the products of the insurance company
Always consider the products of your insurance service provider. An incurred claim ratio varies depending on the type of policies that a company usually offers to its policyholders. The total incurred claim ratio is calculated based on the average of these products.
3. Lower Earnings
The novice or start-up insurance companies may not earn an adequate amount of money through premiums in the first few years of their operations. But their claims are quite high, and as a result, the ICR of these companies will be more than 100%. This implies the insurance companies are suffering from losses since the claim occurrence is higher in the initial years.
4. If the ICR is less than 50%
If this is the scenario, then the insurance company will earn a chunk of profits. But this may not be fruitful for policyholders. Because this implies, the company has collected more premium amounts as compared to the claim settlement amounts.
5. If the ICR is between 50-100%
This scenario is advantageous for both policyholders as well as insurance companies. This signifies the company maintains transparency in every step, and the claim settlement process is also hassle-free. Choose an insurance company that has an incurred ratio between 70-90%.
6. If the ICR is more than 100%
If a company’s ICR goes beyond 100%, the insurer is paying more claims than its total collected premiums. This means the company is running at a loss, and the claims will soon be rejected. Thus, never purchase a health insurance policy from an insurer whose ICR is above 100%.
7. The significance of the ICR
The ICR plays an imperative role in your policy purchasing decision. If an insurance company has a higher ICR, this is good for policyholders because the company is trustworthy and is successfully paying the policyholders’ claims. On the other hand, a higher ICR indicates lower profits for insurance companies. For example, if a company’s ICR is 90%, the company has spent 90% of its collected premium amount towards claim settlements, and the remaining 10% is its profit.
Difference between Incurred Claim Ratio and Mediclaim Settlement Ratio/Claim Settlement Ratio (CSR)
Incurred Claim Ratio and Claim settlement ratio/ health insurance settlement ratio are two different terms, but people often get confused with these two. A claim settlement ratio implies the ratio of settled claims to the total claims filed in a financial year. So, if the claim settlement ratio/Mediclaim claim settlement ratio is 90% for a company, then this means the insurance company has settled 90 claims out of 100 claims filed in a year. The remaining 10% are either incomplete or rejected by the insurer.
Now, you have an adequate idea about incurred claim insurance settlement ratio and how it will influence your policy purchase decision. Always compare incurred claim ratio with other rudimentary features like the policy benefits, premium amount, the waiting period, and the claim settlement ratio of health insurance companies. After evaluating all these parameters, including the best claim ratio in health insurance, purchase a health policy that resonates with all your needs.