Every year, IRDA (Insurance Regulatory & Development Authority) publishes Incurred Claims Ratio (ICR) data in its annual report. ICR is one of important factors that you can consider when buying a health insurance plan.
What is Incurred Claims Ratio (ICR)?
Incurred Claims Ratio is nothing but the total value of all claims paid by the health insurance company divided by the total amount of premium they collected in the same period. Incurred Claims Ratio indicates the company’s ability to pay the claims.
As an example a 70 percent incurred claims ratio means that for every Rs 1000 of premium earned in a given accounting period, Rs 700 is paid back in the form of benefits (claims). Incurred Claim ratio is the ratio of the claims settled to the premium received.
So, how to analyze the ICR data? Whether a Non-life Insurance company which has say ICR of 120% is better than a company which has incurred claims ratio of say 75%?? Let us now understand this point.
If ICR is greater than 100%, it means that the company has given more money away as claims than what it has collected as premium. This is not good for the company.
If ICR is less than 100% say in the range of 60% to 90%, it means that the health insurance company has given lesser amount as claims than what it has collected. It means that they are making profits.
If ICR is very low say 30%, it means that either the company is charging higher premium rates than its peers and making huge profits (or) it has a good pool of low-risk (may be youngsters) profile individuals as clients (or even both).
Hence it is better to be with an insurance company which has neither high nor low incurred claim ratio. I believe that the ideal ratio (percentage) range can be anywhere between 60% to 90%.
The main difference between Incurred Claims Ratio and Claim Settlement ratio is – Incurred Claim ratio is the ratio of the claims settled to the premium received. Claim Settlement Ratio (CSR) is the ratio of claims approved to total claims made (received). The higher the CSR the better. Same is not the case with ICR.
Non-Life Insurance companies provide products under various segments like Motor, Health, Home, Personal Accident, Travel, Marine and other types of Insurances. In this post, we are analyzing the ICR details of Health Insurance vertical only.
Non-Life Insurance Business in India 2015-16
- The non-life insurance industry underwrote total direct premium of Rs 96,379 crore in India for the year 2015-16 as against Rs 84,686 crore in 2014-15.
- The public sector insurers exhibited growth in 2015-16 at 12.08% ; over the previous year’s growth rate of 10.24%.
- The private general insurers registered a growth rate of 13.12%, against 9.62%growth rate during the previous year.
- The standalone health insurers registered a growth rate of 41.12% in 2015-16 as against 31.07% growth rate during 2014-15.
- ICICI Lombard continued to be the largest private sector non-life insurance company, with market share of 8.39%.
Health Insurance & Latest IRDA Incurred Claims Ratio 2015-16
Below are the details of Stand-alone Health Insurers’ incurred claims ratio during 2015-16;
- The incurred claims ratio of all four public sector General Insurance companies was more than 100% in 2015-16.
- The incurred claims ratio (net incurred claims to net earned premium) of the Public Sector non-life insurance companies (health insurance vertical) was 115% during 2015-16 which is higher than the previous year figure of 109%.
- The incurred claims ratio of the Private Sector non-life insurance companies (health insurance vertical) was 74% during 2015-16 which is lesser than the previous year figure of 79%.
- The incurred claims ratio of the stand-alone Health Insurance companies was 58% during 2015-16 which is lesser than the previous year figure of 62%.
- You can notice that Public sector non-life insurance companies like National Insurance, New India, Oriental & United have Incurred Claim Ratios of more than 100%. So, does this mean that the PSU Non-life insurance companies are making losses? Kindly note that these companies also provide other types of insurance covers like Fire, Marine, Travel, Motor etc., Their health insurance vertical may not be making profits but other verticals might be generating profits.
- As far as Private General Insurance companies are concerned, the ones which have reasonable and are close to total average ICR (avg ICR of all Pvt companies is 74.59%) have been highlighted in GREEN. You may prefer buying health insurance policies from these companies.
- All the stand-alone ones or the specialized health insurance companies like Apollo Munich, Max Bupa, Religare & Star Health have good Incurred Claims Ratio which is around 60%. So, these can be preferred to other ones when buying a mediclaim or family floater health insurance plans.
- Kindly note that the industry’s average figure (the average ICR of non-life & stand-alone health insurance companies) is 68.53%.
When it comes to health insurance, there is no one-size fits-all plan that you can rely on. Medical Insurance is a contract based policy with legal jargon thrown in. Besides this, a Health Insurance policy has medical terminologies. Of the numerous medical insurance plans in the market, you may find that each one is unique in some way or the other, with its own benefits and limitations.
The Incurred Claim Ratio (or) Claim Settlement Ratio can help you in shortlisting the best health insurance companies but you have to do a lot of research to identify the right and best health insurance plan which suits your requirements. You have to make a comparison of health insurance plans offered by multiple companies. This is where I believe that health insurance comparison websites could be beneficial.
Actually, Claim Settlement Ratio can be a better indicator than ICR for shortlisting best health insurance companies. But IRDA does not publish CSR details for Health Insurance in its annual report. The CSR details are available in respective company websites. I tried to collate CSR details by visiting respective company websites, but the data which is available is incomplete. You can find data under ‘public disclosures’ menu option.
- Best portals for comparing Health Insurance Plans
- Evaluate these important factors when buying a Health Insurance plan
(Image courtesy of fantasista at FreeDigitalPhotos.net) (Reference & Source : IRDA Annual Report 2015-16) (Post published on : 22-December-2016)