Health insurance is an important way to protect yourself financially in case any medical emergencies arise. Healthcare costs increase day by day, making it more important to have one insurance plan. However, to buy them, you also need to know all the terminology of the medical insurance plan for a better understanding of your policy at the time of purchase.
One of these terms is “Incurred Claim Ratio.” Thus, in this article, we will learn what the incurred claim ratio is in medical insurance, how it is calculated, How it affects the premium, why it is important and more.
What Is The Incurred Claims Ratio (ICR)?
Incurred Claims Ratio (ICR) is the ratio of the claims paid out by the insurance company to the total premium collected from the policyholder in a financial year. The ICR measures the company’s claim settlement in comparison to the premium it collected which indicates the company’s long-term financial credibility. The Ideal ratio of ICR is between 50% – 70% and from it the higher the medical insurance claim ratio, the better the financial stability of the insurance provider.
If you confused it with the CSR (Claim Settlement Ratio) then you must know that CSR calculates the number of claims settled by an insurance provider in a year compared to the total number of claims that arises for a particular insurer.
CSR or Claim Settlement Ratio = Total no. of Claims Approved / Total no. of Claims Received x 100
How Is The Incurred Claims Ratio (ICR) Calculated?
To calculate the incurred claims ratio (ICR), you have to divide the total amount of claims paid out by an insurance company during a fiscal year by the total amount of premiums collected during the same period. The formula to calculate the ICR is as follows:
- ICR = (Total Claims Paid / Total Premiums Collected) x 100
For example, if an insurance company paid out Rs. 75 crores in claims and collected Rs. 100 crores in premiums during a fiscal year, the ICR would be:
ICR = (75 / 100) x 100 = 75%
Why Is The Incurred Claims Ratio (ICR) Important?
The incurred claims ratio (ICR) is an important parameter for evaluating the key performance of an insurance company. It helps you to make a decision when you check various online health insurance plans. Here are some reasons why it matters, such as:
- Claims settlement record: The ICR indicates the claims settlement record of an insurance company. A higher ICR means a better claims settlement record for an insurance company, which means the company paid out a higher percentage of claims to policyholders.
- Policyholder satisfaction: The ICR shows policyholder satisfaction, as a higher ICR indicates that the insurance company meets the policyholder’s claims promptly and efficiently.
- Financial stability: The ICR also reflects the financial stability of an insurance company, as a higher ICR means a company is more financially stable and can pay out claims promptly.
- Comparison with other insurers: policyholders can use the ICR to compare the performance of different insurance companies, as a better claim settlement record indicates a good insurance company.
What Is A Good Incurred Claim Ratio (ICR)?
A good health insurance incurred claim ratio (ICR) means a high ICR ratio, which reflects that the health insurance company is paying out a higher percentage of the claims to the policyholder. Ideally, a 70% or higher percentage of ICR is a good indicator for health insurance plans, while an ICR of 60% or higher is considered good for life insurance policies.
However, ICR can vary depending on various factors, such as underwriting policies, claims management practices, the business model of the insurance company, and more.
How Does Incurred Claims Ratio (ICR) Affect Premiums?
A higher ICR indicates that the company must pay a significant portion of the premium to settle the claim. So they will set the premium accordingly, which will stay higher as the insurance company has to pay claims out of it, cover administrative costs, and allocate profit for the survival of the insurance company.
On the other hand, lower ICR results in a lower premium. But remember that ICR is not the only factor that affects the premium, as other factors such as gender, medical history, and the type of coverage also influence the rate.
How To Interpret The Information About The Company From The Incurred Claims Ratio (ICR)
ICR provides the financial picture of insurance companies’ financial health. Thus, here are some scenarios that will help you understand what percentages mean about the insurance company.
- Incurred Claims Ratio Over 100%
A 100% ICR claim ratio is not good for the company, as it denotes that the company has spent more on paying the claims than the premium it received. It indicates the loss of the insurance company.
- Incurred Claim Ratio Is Less Than 50%.
If the incurred-claim ratio is less than 50%, the insurance company does not settle the several claims compared to the premiums they take from policyholders. Therefore, taking the policy from this kind of insurance company will be riskier, as it is unnecessary; they will settle your claim if you file one in the future.
- Incurred Claims Ratio Between 50% and 100%
If the incurred claims ratio is between 50% and 100%, it indicates that the insurance company is maintaining its profitability and the policyholders’ claims. So these are the companies you should consider for your insurance policies.
Conclusion
So while purchasing a medical insurance policy or family health insurance, you should know about most of the important terminology to maximise the benefits and make a wise decision to support your health financially. As a result, for medical insurance, a higher incurred claims ratio is always recommended. But remember to take care of other things as well, such as premium coverage, to find the best policy for your budget.