Health insurance is often perceived as a complex purchase, especially for first-time buyers, due to the vast array of plans available in the market. The decision-making process becomes even more challenging because of the numerous technical terms used in policy details. Many of these terms can be difficult for a layperson to understand, making it harder to obtain adequate information. Therefore, experts recommend that individuals educate themselves thoroughly before purchasing any health insurance coverage.

Key Factors to Consider When Choosing a Health Insurance Provider

When selecting a health insurance company, several factors should be taken into account. These include:

• Service Quality: Assessing the company’s efficiency in handling queries and claims.
• Customer Reviews: Checking feedback on social media and discussion forums.
• Claim Settlement Ratio (CSR): Evaluating the percentage of claims settled by the insurer.

Additionally, one lesser-known yet crucial factor that many buyers, even experienced ones, tend to overlook is the Incurred Claims Ratio (ICR).

What is the Incurred Claims Ratio (ICR)?

The Incurred Claims Ratio (ICR) represents the relationship between the net claims settled by an insurance company and the net premiums earned during a financial year. Simply put, it is the ratio of net claims to net premiums, expressed as a percentage.

How is the Incurred Claims Ratio Calculated?

Mathematically, the ICR is calculated using the following formula:

ICR = (Net Claims Settled / Net Premiums Earned) × 100

For instance, if an insurance company collects ₹20 lakhs in premiums but pays out ₹15 lakhs in claims, the resulting ICR is 75%.

Where to Find ICR Data

Policyholders do not need to compute the ICR for each insurance provider individually. Instead, the Insurance Regulatory and Development Authority of India (IRDAI) publishes the ICR for all general and health insurance providers in its annual reports. These reports can be accessed on the official IRDAI website for further details.

Interpreting the Incurred Claims Ratio

The ICR provides valuable insights into an insurance company’s financial stability and its ability to settle claims. Here’s how different ICR scenarios impact policyholders and insurers:

1. ICR Above 100%

An ICR exceeding 100% is unfavorable for the insurance company, as it indicates that the company has paid out more in claims than it has earned in premiums. Since premium revenue is the primary income source for insurers, such a scenario suggests financial losses. To regain profitability, the company may adopt stricter assessment procedures and enhance underwriting standards.

2. ICR Below 50%

A low ICR (below 50%) is beneficial for the insurer but may be concerning for policyholders. This suggests that the company is not settling a significant number of claims, possibly due to stringent policy exclusions or claim denials. Policyholders should be cautious, as a low ICR may indicate that their claims might also face rejection in the future.

3. ICR Between 50% and 100%

This range is considered ideal, as it ensures a balance between the insurer’s financial health and the policyholder’s likelihood of receiving claim settlements. For instance, an ICR of 80% indicates that a substantial proportion of claims are honored while maintaining a reasonable rejection rate.

Conclusion

When purchasing a health insurance policy, utilizing tools such as a health insurance premium calculator can help compare plans based on premiums and features. While ICR is a crucial factor in evaluating an insurance provider’s reliability, it should not be the sole determinant in your decision-making process.

Health insurance is a matter of solicitation. Before finalizing a purchase, carefully read the sales brochure and policy wording to understand the benefits, exclusions, limitations, terms, and conditions.

Standard Terms and Conditions Apply.