The Incurred Claims Ratio (ICR) in Medical Insurance: Complete Guide

Health insurance is often regarded as a tricky purchase by new buyers, considering the different plans that are available in the market. The purchase decision also gets confusing due to the many jargons involved in the policy details. Some terminologies are complex for a layman to understand and thus, come in the way of acquiring adequate information. Hence, before you buy any insurance cover, insurance experts recommend educating yourself and only then proceeding with your purchase. The different factors to look for in a health insurance company include the company’s serviceability, its social media reviews, and even the Claim Settlement Ratio (CSR). You must read reviews on forums and talk to your friends and families to be aware of the options that you’re considering. However, there is one lesser-known parameter that many buyers, even experienced ones overlook — the Incurred Claims Ratio (ICR).

What is the Incurred Claims Ratio or ICR?

Incurred Claims Ratio or ICR is the ratio of the net claims settled by the insurance company to the net premiums collected during a financial year. To simplify, ICR is the ratio of net claims and net premiums expressed as a percentage.

How to Compute the Incurred Claims Ratio?

Mathematically expressed, the Incurred Claims Ratio can be expressed as follows — For instance, an insurance company collects ₹20 lakhs in premiums while paying ₹15 lakhs as compensation for claims, creating a ratio of 75%. Policyholders need not calculate the ICR for each insurance company separately. Instead, the regulator, the Insurance Regulatory and Development Authority of India (IRDAI) publishes the ICR of all general and health insurance companies in its annual report each year. You can visit the official website of IRDAI for further details. *Standard T&C Apply

What Can be Understood from the Insured Claims Ratio?

The ICR provides an overall picture of the financial health of the company and is an important metric to look for when buying health insurance plans for family. Since it denotes how much percentage of premiums it has paid, it helps to know whether the company can settle all the legitimate claims raised. Here are some of the different scenarios that can help you understand how it denotes the serviceability of the insurance company:

• Incurred Claims Ratio Over 100%

Having the ICR above 100% isn’t good for the insurance company since it denotes it has spent more money in honoring the claims as compared to what it received as a premium. Since premiums are the primary income source for an insurance company, it is a situation where the insurer is making a loss. Enforcing strict scrutiny procedures and a good underwriting process can help the company restore its profitability. *

• Incurred Claims Ratio is Less Than 50%

This situation is beneficial for the insurance company but not for the policyholders. An ICR lower than 50% means the insurance company has not honored several claims, and in the future, your claim can be one of them. The claims must be transparently paid to the policyholders and a lower ratio highlights that the policy is dearer and has several exclusions leading to rejection of claims. *

• Incurred Claims Ratio Between 50% to 100%

This is an ideal range of ICR for both the insurance company to maintain its profitability as well as the policyholder to ensure the probability of the claims being settled. For instance, a claim ratio of 80% denotes that the majority of the claims are settled while a few of them are either pending or rejected, which can be a reasonable percentage of rejection. * *Standard T&C Apply Among the different tips to know when buying a health insurance policy, you can make use of a handy tool known as the health insurance premium calculator. This nifty tool can help compare policies based on the premiums and also the feature sets they offer. While the ICR is a crucial factor to check when buying a policy, it must not be the sole determinant in deciding which policy to purchase. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read the sales brochure/policy wording carefully before concluding a sale.