What does the Incurred Claim Ratio say about a health insurance policy?

Incurred Claim Ratio (ICR) may indicate how well an insurer is positioned to manage claims or how it is already managing claims. Further, the ICR could serve as one of the metrics when comparing policies. However, ICR data alone isn’t enough to give a clear picture of the claims settlement record of an insurer. Before buying a health insurance plan, it is common for policyholders to ask whether the insurer is good at settling claims. Though it is difficult to answer this, one may get a broad idea about an insurer’s track record by looking at its Incurred Claim Ratio (ICR). The Insurance Regulatory and Development Authority of India (IRDAI) recently released its annual report with ICRs of all health insurance companies for FY 2023-24. The report says there was a decrease in ICRs of health insurers from 88.89% in FY 2022-23 to 88.15% in FY 2023-24. At this point, you may be curious about the meaning and importance of ICR. This article will help you understand. ICR is often confused with a similar-sounding term: Claims Settlement Ratio (CSR). Before going further, let’s first understand the difference between the two. CSR vs ICR: What’s the difference? CSR tells you how many claims an insurer has settled out of the total claims filed. For example, a CSR of 85% in FY 2023-24 would mean the insurer settled 85 of 100 claims filed by policyholders in the previous financial year. In contrast, ICR tells you how much money, out of the total premium collected, an insurer has spent on settling claims in a given duration. So, for example, an ICR of 60% in 2024 would mean the insurer spent ₹60 in claim settlement for every ₹100 collected as premiums in 2024. The IRDAI has only started sharing the ICR data of health insurance companies since last year. What does the ICR data say? ICR data may indicate how well an insurer is positioned to manage claims or how it is already managing claims. Further, the ICR could serve as one of the metrics when comparing policies. If ICR is very low, it would mean at least three things: Either the insurer is very conservative in settling claims, or it is booking more profits, or it is rejecting a lot of claims In contrast, a very high ICR would mean the insurer spends more on claim settlements than the amount it collects from policyholders as policy premiums. Though this might sound good for policyholders, such a practice could put the insurer's entire business at risk. For example, an ICR of 105% means the company is spending ₹105 for every ₹100 collected. Such a cash outflow would make the insurance company unsustainable, ultimately affecting the policyholder's interest. What are the latest ICRs of health insurers? The following table shows the latest ICRs of all health insurance companies in FY 2023-24 and FY 2022-23: | Insurer | Incurred Claim Ratio (%) | | |--------------------------------------------------|--------------------------|------------| | | FY 2022-23 | FY 2023-24 | | Acko General Insurance Limited | 83.88% | 56.91% | | Bajaj Allianz General Insurance Co. Ltd. | 74.27% | 84.96% | | Cholamandalam MS General Insurance Co. Ltd. | 67.88% | 66.67% | | Future General India Insurance Company Limited | 79.18% | 84.62% | | Go Digit General Insurance Ltd. | 71.87% | 93.87% | | HDFC ERGO General Insurance Co. Ltd. | 79.04% | 80.98% | | ICICI Lombard General Insurance Co. Ltd. | 77.33% | 78.85% | | IFFCO Tokio General Insurance Co. Ltd. | 111.18% | 107.46% | | Kotak Mahindra General Insurance Co. Ltd. | 56.01% | 59.06% | | Kshema General Insurance Limited | - | - | | Liberty General Insurance Limited | 74.17% | 79.92% | | Magma HDI General Insurance Company Limited | 72.10% | 87.46% | | Navi General Insurance Limited | 59.28% | 59.40% | | Raheja QBE General Insurance Company Limited | 138.67% | 106.27% | | Reliance General Insurance Co. Ltd. | 86.31% | 89.42% | | Royal Sundaram General Insurance Co. Limited | 83.36% | 92.06% | | SBI General Insurance Company Limited | 73.92% | 87.86% | | Shriram General Insurance Company Limited | 51.53% | 47.47% | | Tata AIG General Insurance Co. Ltd. | 78.33% | 77.94% | | Universal Sompo General Insurance Co. Ltd. | 82.84% | 105.76% | | Zuno General Insurance Company Limited | 89.59% | 88.45% | | National Insurance Co. Ltd. | 102.35% | 90.83% | | The New India Assurance Co. Ltd. | 103.33% | 105.87% | | The Oriental Insurance Co. Ltd. | 130.09% | 101.96% | | United India Insurance Co. Ltd. | 89.57% | 109.23% | | Aditya Birla Health Insurance Co. Limited | 64.68% | 68.31% | | Care Health Insurance Ltd. | 53.82% | 57.69% | | Galaxy Health and Allied Insurance Co. Ltd. | NA | NA | | ManipalCigna Health Insurance Company Limited | 64.66% | 63.78% | | Narayana Health Insurance Limited. | NA | NA | | Niva Bupa Health Insurance Company Ltd | 54.05% | 59.02% | | Reliance Health Insurance Ltd. | NA | NA | | Star Health and Allied Insurance Company Limited | 65.00% | 66.47% | | GRAND TOTAL | 87.27% | 86.35% | Source: IRDAI Annual Report 2023-24 What's an ideal ICR? For policyholders, neither a very low nor a very high ICR is good. It should be somewhere in the middle, ideally below 100 at all times. However, ICR data alone isn’t enough to give a clear picture of the claims settlement record of an insurer. For example, suppose you want to compare two policies while looking at their ICR data. If there is a lot of difference between their ICR numbers, it might be easy for you to decide. However, if the ICR data is similar or equal, you won't be able to make an easy decision. Further, judging an insurer based on ICR alone may not lead to a meaningful conclusion. While you can use it as one of the factors, it is advisable to have a clear understanding of the policy, especially various terms and conditions, exclusions, and features. Knowing these details can significantly reduce the chances of claim rejection by an insurer.