Incurred Claim Ratio in Health Insurance – A Complete Guide

Incurred Claim Ratio - BimaBandhu
Explore the importance of Incurred Claim Ratio (ICR) in health insurance. Discover how to evaluate insurers, interpret ICR data, and safeguard your financial well-being.

Maintaining health and well-being has taken center stage in the current times, which is why having comprehensive health insurance coverage is imperative for individuals and families across India. Health insurance offers financial security during medical emergencies and ensures access to quality healthcare. 

Amidst the myriad of policies and health insurance providers available in the Indian market, making an informed choice can be a daunting task. This is where knowing what Incurred Claim Ratio means can help you make the right purchase decision. 

The Incurred Claim Ratio, often abbreviated as ICR, is a critical metric that every prospective policyholder should grasp. It is a powerful indicator of the performance of an insurance company and its ability to fulfill its commitments when you or your loved ones require medical assistance. At its core, it provides a quantitative measure of how efficiently an insurance provider manages claims and pays out benefits.

In this comprehensive guide, we will delve into the detailed Incurred Claim Ratio meaning and break down its significance in evaluating insurers. Let’s get started.

What is Incurred Claim Ratio in Health Insurance?

Incurred Claim Ratio is a vital metric used in health insurance terminology to assess an insurer’s efficiency in managing claims and providing timely reimbursements to policyholders. It is a quantitative measure that reflects the proportion of premiums collected by an insurance company in a given period against the total claims incurred during the same period.

Here’re the two key components of the Incurred Claim Ratio:

  • Premiums collected

This figure represents the total premiums collected by the insurance company from policyholders during a specific timeframe, usually a financial year.

  • Claims incurred

Claims incurred encompass the total expenses borne by the insurer in settling claims filed by the policyholders, including hospitalization expenses, medical treatments, and other covered healthcare costs during the same period.

Here’s the formula to calculate ICR:

Incurred Claim Ratio (ICR) = (Claims Incurred / Premiums Collected) × 100

Now, let’s talk about the significance of the Incurred Claim Ratio in health insurance:

  • Efficiency indicator

ICR acts as a crucial indicator of how efficiently an insurance company manages its financial resources. A lower ICR suggests that the insurer is effectively containing claim costs and is financially stable.

  • Sustainability

A sustainable ICR is essential for the long-term viability of a health insurance company. A consistently high ICR may indicate that an insurer is paying out more in claims than it is collecting in premiums, which can lead to financial instability and potential premium hikes for policyholders.

  • Claims processing

A higher ICR is generally associated with efficient claims processing. It implies that the insurer is promptly settling claims, which reduces the financial burden on policyholders during medical emergencies.

  • Policyholder confidence

A transparent and favorable ICR can enhance policyholder confidence in the insurance provider. It reinforces the belief that the company can be relied upon to provide financial support when needed.

  • Regulatory compliance

Insurance regulatory authorities in India monitor ICR to ensure insurance companies maintain a reasonable balance between premium collection and claim payouts. This is done to safeguard the interests of policyholders.

Understanding the Incurred Claim Ratio of an insurer is a critical step in evaluating its reliability and financial health. It empowers you to make informed decisions when selecting a health insurance policy. 

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What Does the Incurred Claim Ratio Indicate?

Now that you have a basic understanding of Incurred Claim Ratio meaning in health insurance, let’s delve into the nuances of interpreting ICR figures. While ICR can provide valuable insights into an insurance company’s performance, it’s important to know how to assess these figures effectively. 

Here’s how you can interpret ICR:

1. High vs. low ICR

  • A high ICR (above 100%) indicates that an insurance company pays out more in claims than what it collects in premiums during a specific period. While this might initially seem favorable to policyholders, sustained high ICR can lead to concerns about financial stability for the insurer. It may also result in future premium hikes to compensate for the deficit. Therefore, it’s crucial to investigate further and understand the reasons behind a high ICR.
  • A low ICR (below 100%) suggests that an insurance company manages its claims expenses effectively and is financially stable. However, an extremely low ICR might indicate that the insurer is overly cautious in settling claims, which ultimately results in delays or disputes. 

2. Consistency

Consistency in ICR figures over several years is a positive sign. It reflects the insurer’s ability to maintain a stable financial position and efficiently manage claims over time. Fluctuations in ICR can indicate variability in the insurer’s performance.

3. Industry comparison

To gain a better perspective, you can also compare an insurer’s ICR with the industry average. An ICR that aligns with or exceeds the industry average suggests that the insurer is performing in line with industry standards. However, deviations from the average, whether higher or lower, ask for closer examination.

4. Segment-specific analysis

Some insurance companies offer various policies catering to different demographics and needs. In their case, you can consider analyzing incurred claim ratios for specific policy segments. For instance, an insurer might have a high ICR for policies aimed at senior citizens due to higher healthcare costs associated with this age group. This approach can provide an accurate picture of how well an insurer serves your particular demographic.

5. Year-on-year trends

You need to pay attention to the trend in an insurer’s ICR over multiple years. A consistent upward trend can be a positive indicator, while a declining trend might raise concerns about the insurer’s financial health.

While the incurred claim ratio is an essential metric, it should not be the sole factor in your decision-making process when choosing a health insurance policy. It should be considered alongside other factors such as coverage, network hospitals, waiting periods, and policy terms and conditions. 

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How to Check the Incurred Claim Ratio of a Health Insurer?

You can check the Incurred Claim Ratio information directly from the health insurance company website or the Insurance Regulatory and Development Authority of India (IRDAI) website. The IRDAI releases an annual report that covers the ICR of different insurers operating in India.

Simply navigate to the section on the IRDAI website that contains annual reports and publications. This section typically includes a repository of reports related to the insurance industry. You can look for the most recent annual report released, like the one released in 2021-22. These reports are published on an annual basis and contain a wealth of information about the performance of insurance companies, including their ICR figures.

Difference Between Incurred Claim Ratio and Claim Settlement Ratio (CSR)

The following table covers various differences between ICR and CSR:

Aspect/Parameter Incurred Claim Ratio (ICR) Claim Settlement Ratio (CSR)
Definition ICR measures the proportion of claims incurred by an insurance company against the premiums collected during a specific period. CSR represents the percentage of claims that an insurer successfully settles or pays out in a given period.
Focus ICR focuses on the financial efficiency of an insurer, specifically in managing claims expenses relative to premium income. CSR focuses on the insurer’s ability to process and settle claims promptly.
Calculation Calculated as: (Claims Incurred / Premiums Collected) x 100 Calculated as: (Number of Claims Settled / Number of Claims Received) x 100
Interpretation A higher ICR may indicate that an insurer is paying out more in claims than it is collecting in premiums. A higher CSR indicates that an insurer is adept at settling claims and offers timely access to benefits to policyholders.
Significance ICR is crucial for assessing an insurer’s financial stability, premium sustainability, and claims management efficiency. CSR is important for policyholders as it reflects the insurer’s reliability in fulfilling their claims, which is critical during medical emergencies.
Impact on Premiums A high ICR may lead to concerns about future premium hikes to cover the claims deficit. A high CSR may not directly impact premium rates but enhances policyholders’ confidence in the insurer.
Policyholder’s Perspective Policyholders should consider ICR when evaluating an insurer’s financial health and premium stability. Policyholders should consider CSR to gauge an insurer’s track record in promptly settling claims and providing financial support.
Industry Comparison Useful for comparing insurers’ financial efficiency and sustainability. Useful for comparing insurers’ track records in claim settlement, especially in terms of customer satisfaction.

Also Read: More About CSR of Life Insurers


What is a good incurred claim ratio?

A good ICR for an insurance company typically falls in the range of 70% to 90% or higher. This indicates that the insurer is efficiently managing claims while maintaining financial stability. However, the definition of ‘good’ may vary based on factors like the insurer’s size, business model, and market conditions.

Which company has the highest ICR?

The company with the highest ICR can vary from year to year. ICRs of different insurers in India change annually based on their claims and premium collections. You can check the most recent data or the Insurance Regulatory and Development Authority of India (IRDAI) annual report for the latest ICR rankings.

How is ICR calculated in health insurance?

ICR in health insurance is calculated by dividing the total claims incurred by the insurance company during a specific period by the total premiums collected in the same period (as in the formula given above. This metric measures the efficiency of an insurer in managing claims relative to its premium income.

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