Incurred Claims Ratio: Consider When Choosing a Health Insurance Plan

Have you ever wondered whether Incurred Claims Ratio (ICR) is a secret to choosing a reliable health insurance company?

We’ve been in the health insurance industry for years. We have been familiar with ICR and the habits of professional and non-professional policy buyers for years.

We’ve come across a lot of nonsense.

Emulating the Incurred Claims Ratio of insurance companies can somehow slit the struggle of being a professional policy buyer.

Unfortunately, health insurance could be a little complicated if you don’t choose the right policy and the right company.

But in the quagmire of crazy tips and tricks, knowing about ICR has merit.

Shall I explain this?

Incurred Claims Ratio (ICR)

The ICR metric indicates the capability of an insurance company to settle claims. It is calculated based on the total value of all claims paid by the insurer divided by the total amount of premium received by the insurer in a financial year.

The formula is,

Incurred Claim Ratio = Net claims incurred / Net premiums collected.

For instance, say the ICR of an insurance company is 85% in a particular financial year. It means the company during this period has spent Rs. 85 on claims for every Rs. 100 received as premiums. And the balance of 15% is the profit margin. If the ratio increases to 90% in the next financial year, the profit of the insurance company will fall from 15% to 10%, which is not good for the company.

Ideally,

The perfect value of ICR is between 75% and 90%.

This range shows a healthy settlement of claims by the insurance company against the premium.

Remember,

A high ratio is always bad news.

A higher ICR range in health insurance shows lower profits. A higher than 100% ratio means that the insurer is incurring losses as the premium collected is insufficient to pay the claims. In this condition, the insurance company probably utilizes its reserves to settle claims. It’s bad news.

Keep in mind that the Incurred Claims Ratio higher than 100% is not a good indicator. It indicates that the insurance company uses a large part of the premium to cover the actual risk transfer. A higher ICR can be seen in a new company.

Key Points to Remember

Although the incurred claim ratio is a good yardstick for evaluating the performance of the company, it doesn’t let you have the bigger picture. Below are two points to take into account:

Claim Settlement

The ICR evaluates the claim settled against the collected premiums. It doesn’t show the time taken to settle claims. That’s why the insurance company may have a ratio range of 90-95%. The claim settlement procedure may take months, which will harass you. So, on the first hand, you may be happy to see the ICR range of the insurance company, on the other, you may be harassed due to the delay of the claim.

Start-Ups

A new company may collect insufficient premiums during the initial few years of operation. It may experience a higher incurred claim ratio. In such a case, the ICR may go beyond the 100% mark.

Also Read

Claims Related To Diabetes Have Gone Up By 120%

Claims Ratio in Health Insurance - Importance

Conclusion

Hope, you have understood the incurred claims ratio in health insurance. When you buy a policy for you, do consider the ICR of the company, but also keep in mind the two key points mentioned above.

You may also like to know what Waiting Period in Health Insurance is.