Quick Overview
- Incurred Claim Ratio (ICR) is a figure used to show the percentage of the premiums that an insurance company settles in claims during a financial year.
- The ICR ratio encompasses both paid and unpaid claims, giving it a more holistic measure as compared to other claim count-based ratios.
- The acceptable range of a good Incurred Claim Ratio is 65 to 85 per cent, indicating a balance between claims payment and profitability.
- A low ICR can be an indicator of strict claim approvals, whereas a high ICR can be an indicator of financial stress and potential premium increases in the future.
- Claim ratio incurred by health insurance companies differs among the public, private, and standalone insurers because of the difference in risk profiles and customer base.
- ICR also does not equate to the highest claim settlement ratio in health insurance because there are different variables that are used to measure claim performance.
- Insurers that experienced a very high ICR might raise the premiums to ensure the insurers remain viable.
- ICR should not be the only consideration made by policyholders during the selection of health insurance.
- Factors such as coverage benefits, network hospitals, claim settlement ratio, customer service and policy terms should be considered together with ICR.
Introduction to Incurred Claim Ratio (ICR)
When one is deciding on the appropriate health insurance policy, several parameters are to be considered, and one of the parameters is the Incurred Claim Ratio. This ratio is often released by insurance regulators on an annual basis, and it assists policyholders in knowing how effectively an insurance company is paying claims relative to the premiums it is collecting.
Incurred Claim Ratio Meaning in Health Insurance
The incurred claim ratio is defined as the ratio of the number of claims paid (or payable) by the insurance firm in a financial year, in reference to the total premiums earned during a financial year. It is calculated as a percentage, and it provides information about the experience of an insurer in terms of claims.
It would answer the general question: How much of the money collected as premiums is actually being paid out as claims?
Why ICR Matters for Policyholders
The ICR ratio is a key performance indicator of reliability to policyholders. A very low ICR can indicate that the insurer is rejecting or scaling down the claims, whereas a very high ICR can be a sign of financial stress. Being aware of ICR will assist the consumers in making informed choices as opposed to having the tendency to take a policy because it has low premiums.
What is the Incurred Claim Ratio in Health Insurance?
Definition of Incurred Claim Ratio
So, what is the incurred claim ratio in health insurance exactly?
Incurred claim ratio is determined as: Percentage of total claims incurred (paid and outstanding) by an insurance company divided by the total premiums earned within the same period.
The ratio is more comprehensive than some other measures because it involves settled claims as well as claims that are in the process of settlement.
What Does ICR Indicate About an Insurance Company?
The Incurred Claim Ratio indicates:
- Claim-paying behaviour
- Risk underwriting quality
- Premium pricing strategy
- Overall financial health
A balanced ICR of an insurer is usually regarded as stable and customer-friendly.
How Is Incurred Claim Ratio Calculated?
ICR Formula Explained
The formula used to determine the Incurred Claim Ratio is:
Incurred Claim Ratio (%) = (Total Claims Incurred ÷ Total Premiums Earned) × 100
Here:
- Claims paid and outstanding claims are represented in Total Claims Incurred.
- Total Premiums Earned- This is the amount of premiums received after adjustments.
Example to Understand ICR Ratio in Health Insurance
Assume that an insurance firm collects 1000 crores of premium in one year and gives out 800 crores of claims.
ICR = (800 ÷ 1,000) × 100 = 80%
It implies that the insurer had to pay 80 rupees as claims on every 100 rupees of earned premium.
Incurred Claim Ratio vs Claim Settlement Ratio (CSR)
Key Differences Between ICR and CSR
ICR is often mixed with CSR by many people; however, they have different purposes.
- Incurred Claim Ratio quantifies the amount of claims against the amount of premiums.
- Claim Settlement Ratio is a measure of the number of claims settled as compared to the number of claims received.
Whereas CSR is concerned with the volume of claims, ICR is concerned with the value of claims.
Which Ratio Is More Important While Choosing Health Insurance?
None of the ratios should be considered separately. A company can be ranked first in the claim settlement ratio in health insurance, and an unsustainably high ICR may be a sign of future premium increases or service problems. Ideally, both ratios are supposed to be healthy and balanced.
Why Is Incurred Claim Ratio Important?
What ICR Reveals About an Insurer’s Financial Health
The ICR ratio acts as a financial thermometer:
- An ICR of less than 50% can be an indication of aggressive claim rejections.
- ICR of 60 to 90 per cent is optimal.
- The ICR of over 100% indicates that the insurer is making higher payments than it is receiving.
Regularly elevated ICR may have effects on solvency and long-term sustainability.
Impact of ICR on Claim Payments and Premiums
An increasing Incurred Claim Ratio usually causes insurers to:
- Increase premiums
- Tighten underwriting norms
- Revise policy terms
Therefore, ICR has a direct influence on both affordability andthe experience of claims.
How to Interpret Incurred Claim Ratio (ICR)
What Is a Good Incurred Claim Ratio?
A good incurred claim ratio generally lies between 65% and 85%. This range suggests:
- Claims are being paid fairly
- The insurer is financially stable
- Premiums are reasonably priced
Low ICR vs High ICR – Which Should You Prefer?
- Low ICR (<50%): May indicate fewer claims paid
- High ICR (>100%): May indicate financial stress
- Moderate ICR (70–85%): Ideal for policyholders
Always look for consistency over multiple years.
Incurred Claim Ratio of Health Insurance Companies in India
The incurred claim ratio of health insurance companies in India varies based on business model, customer base, and risk exposure.
Public Sector Health Insurance Companies and ICR
Public insurers often report higher ICRs due to:
- Older policyholder base
- Social insurance obligations
- Lower premiums
While they may appear customer-friendly, very high ICRs can signal inefficiencies.
Private Health Insurance Companies and ICR
Private insurers typically maintain moderate ICRs by:
- Better risk selection
- Technology-driven claim management
- Controlled hospital networks
This balance often results in smoother claim experiences.
Standalone Health Insurance Companies and ICR
Standalone health insurers focus solely on health products, leading to:
- Specialized underwriting
- Focused claim management
- Competitive ICR ranges
Their ICR performance is often more stable than that of multi-line insurers.
Industry Trends in Incurred Claim Ratio
Recent Trends in ICR Ratio
In recent years, the Incurred Claim Ratio has seen fluctuations due to:
- Rising medical inflation
- Increased hospitalisation rates
- Growing awareness and claim usage
Post-pandemic periods have especially influenced higher claim outflows.
How Market Conditions Affect ICR
Factors affecting ICR include:
- Healthcare cost inflation
- Regulatory changes
- Claim fraud
- Network hospital pricing
Insurers constantly recalibrate premiums to manage these shifts.
Does a High ICR Mean Better Insurance?
Highest Claim Settlement Ratio vs Ideal ICR
A company with the highest claim settlement ratio in health insurance may still have a risky ICR if claim payouts exceed sustainable levels. High ICR alone does not guarantee better service or long-term reliability.
Limitations of Relying Only on Incurred Claim Ratio
Relying only on ICR ignores:
- Claim turnaround time
- Customer service quality
- Coverage exclusions
- Network hospital reach
ICR should be one of many decision-making tools.
How Does Incurred Claim Ratio Affect Health Insurance Premiums?
Relationship Between ICR and Premium Pricing
There is a direct correlation between ICR and premiums:
- Rising ICR → Increased premiums
- Stable ICR → Competitive pricing
- Falling ICR → Potential discounts or benefits
Insurers aim to maintain a sustainable balance.
Can High ICR Lead to Higher Premiums?
Yes. If an insurer’s icr ratio remains high for multiple years, premium hikes are almost inevitable to offset losses and meet solvency norms.
Should You Rely Solely on ICR When Choosing Health Insurance?
Other Factors to Consider Along with ICR
While understanding what the incurred claim ratio is important, you should also evaluate:
- Policy coverage and sub-limits
- Waiting periods
- Co-payment clauses
- Room rent limits
Coverage, Network Hospitals, CSR, and Customer Service
A good policy balances:
- Reasonable Incurred Claim Ratio
- Strong CSR
- Wide hospital network
- Efficient customer support
Only a holistic evaluation ensures long-term satisfaction.
Conclusion
The Incurred Claim Ratio is a powerful indicator of an insurer’s claim behaviour and financial discipline. However, it should not be the sole deciding factor. A moderate and consistent ICR, combined with strong customer service, comprehensive coverage, and fair claim settlement practices, makes for a reliable health insurance choice.
FAQs
What is the incurred claim ratio in health insurance?
The incurred claim ratio is the percentage of total claims paid or payable by an insurer against the total premiums earned in a financial year.
What is a good ICR ratio for health insurance companies?
An ICR between 65% and 85% is generally considered good and sustainable.
Is a high incurred claim ratio good or bad?
A very high incurred claim ratio may indicate financial stress, while a very low ratio may suggest fewer claims paid. Balance is key.
What is the difference between ICR and claim settlement ratio?
ICR measures claim amount versus premiums, while claim settlement ratio measures the number of claims settled versus claims received.
Should I choose a policy based only on the incurred claim ratio?
No. ICR should be considered along with coverage benefits, CSR, network hospitals, premiums, and customer service quality.
