The IRDA, or Insurance Regulatory and Development Authority publishes the Incurred Claims Ratio for health insurance companies in India. Incurred Claim Ratio is basically the overall value of every claim a company has paid divided by the total sum of premium collected during the same period. Incurred Claims Ratios are calculated on an annual basis, and the ratios for 2014-15 and 2013-14 have been listed below for the sake of comparison.
Incurred Claim Ratio = Net Claims Incurred / Net Earned Premium
Incurred Claim Ratio of Health Insurance Companies - A Comparison:
|Insurer||Net Earned Premium (in lacs)||Net Claims Incurred (in lacs)||Incurred Claims Ratio (%)|
|PUBLIC SECTOR HEALTH INSURERS|
|National United Oriental New India||259,216 207,502 284,120 162,988||332,965 299,246 200,410 368,785||270,331 273,098 275,179 185,417||366,344 356,057 234,517 364,302||104.29 114.26 96.85 115.23||110.2 118.98 117.02 98.78|
|PRIVATE SECTOR HEALTH INSURERS|
|IFFCO – TOKIO||19,741||29,989||17,209||27,714||87.17||92.41|
|PRIVATE SECTOR STANDALONE HEALTH INSURERS|
What do Incurred Claim Ratios Mean?
Incurred Claims Ratio shows the ability of a company to make payments towards claims. If the ICR of a company is more than 100%, it indicates that the amount of money given away by the company as claim is more than the amount of money collected by the company as premium. In such cases, the company will find it hard to sustain itself, and as a result, will either resort to rejecting some borderline claims, raise the price to better manage claims, or change their product altogether.
If the ICR of a company is between 50% and 100%, it indicates that the company has collected more money as premium than it has given away as claims. In such cases, the company makes profits and means that the company has not only produced a quality product, but has also succeeded in selling it to customers and helping them understand where claims must be made and where they shouldn’t.
If the claim is less than 50%, it means that the company is either hardly giving out claims or is making relatively large profits. However, the fact that the company is generating considerable profits is not necessarily a good thing as all health insurance companies should offer products that actually pay out claims within the correct limits. In case claims are low, then customers who purchase such products realise over a period of time that the health insurance policy is costly and/or the number of exclusions in the policy are way too many, and thus shift to a better or more efficient product. Hence, the perfect value of ICR ranges between 75% and 90%.
Things to Consider :
While ICR is a fine yardstick with which the performance of a company can be measured, it does not tell the whole story. Following are the points to consider with regards to the ICR of a company.
- Time taken for settlement of claims: While ICR is calculated by comparing the claims settled by a company against the collected premiums, the time taken for the settlement of claims in not considered. Hence, the insurer may have recorded a ratio between 90% and 95%, but the claim settlement process may still take as long as four to six months, making it a rather hassling experience for the individual. So basically, the customers will have to wait patiently for the settlement of claims while the insurer delays it while maintaining a healthy ratio at the same time.
- Low earnings: Insurers who operate start-ups may not have earned a substantial amount of money through premiums initially in its first few years of operations, thus making the claims experienced relatively high. As a result, the ICR of the company will be more than 100% which means that the insurer is incurring losses due to the fact that the claim incidence in the initial years may have been significantly higher.
Difference between Incurred Claim Ratio and Claim Settlement Ratio?
Incurred Claim Ratios are often confused or mistaken for the same as Claim Settlement Ratios. A claim settlement ratio is basically the ratio of settled claims to the total claims filed in a particular accounting period. Hence, in case the claim settlement ratio of a company stands at 90%, it means that 90 claims out of the 100 filed have been settled. The remaining 10% are either pending or rejected by the insurance company.
For instance, say Company A has an incurred claim ratio of 90% and Company B’s ICR is 95%, most customers will likely opt for Company B as their ratio is higher. However, Company A must also be given some consideration as Incurred Claim Ratio is not the factor based on which the reputation of an insurance provider is measured. The reason for this is that the time taken to settle claims is not mentioned in the ICR. Company B may have a higher ratio of 95%, but the time taken for the settlement of claims can be relatively high (six months or above). On the other hand, Company A has a lower ratio in comparison with Company B, but the time taken for the settlement of claims can be only a month or two, making it easier for a customer to settle his / her claims at a quicker rate than it would with Company B.
Moreover, there may be other factors such as network hospital coverage, specific plan benefits such as premium rates and coverage that must also be considered when choosing a company as an insurance provider. The key to choosing the right health insurance provider is to compare the ratios and pay attention to the other important factors.
GST rate of 18% applicable for all financial services effective July 1, 2017.
Disclaimer: Premiums may vary depending upon factors like age, location and prevailing taxes/GST.