How to calculate Incurred Claim Ratio in Health Insurance?

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The importance of health insurance has been stressed over and over again and yet the importance cannot be optimally highlighted.

The awareness among the common masses has increased as is evident in the rising penetration of health insurance in the market today as compared to a decade ago.

With the rising awareness, insurers are offering more and more newer types of health plans to lure the potential buyer towards their products.

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New features, enhanced benefits, specialized plans have revolutionized the health insurance sector. The common man is spoilt for choice when it comes to buying the best plan for himself.

As such experts have developed certain parameters to compare between different insurers and the plans they offer. Comparing the Incurred Claim Ratio is one such yardstick used to measure the performance of an insurer.

Simply stated, Incurred Claim Ratio means the ratio of the net claim settled by the insurer to the net premiums collected in any given year. The formula is:

Incurred Claim Ratio = Net claims incurred / Net Premiums collected:

So, suppose company ABC in the year 2014 earns Rs 10 lakhs in premiums and settles total claim of Rs 9 lakhs then the Incurred Claim Ratio will be 90% for the year 2014.

Significance of the Ratio

A higher Incurred Claim Ratio is good news for you, the investor or the existing policyholder because it indicates that the company is successfully meeting claims made on it.

Therefore, you can put a higher amount of trust on insurers having a high Incurred Claim Ratio.From the insurer’s perspective, a higher ratio indicates lower profits.

For instance in the above example, a 90% ratio indicates that 90% of the premiums collected or earned in the year are spent towards claim settlements and the balance 10% is the profit margin.

If the ratio in 2015 increases to 95%, the profit of the insurer will fall from 10% to 5% which will be bad from the company’s revenue experience but good for the customer.

A ratio higher than 100% indicates that the company is incurring losses because the premium collection is insufficient to pay the claims and so the insurer is probably utilizing its reserves to settle claims which is bad news.

Points to Consider

Though the Incurred Claim Ratio is a good yardstick to measure the company’s performance, yet it does not reflect the bigger picture.

Time taken to settle the claims:

For starters, though the ratio measures the claims settled against the collected premiums, it does not take into consideration the time taken to settle the claims.

So, the insurer may have a ratio in the range of 90-95% yet, the claim settlement process maybe lengthy taking about 4-6 months and the experience may be hassling for you.

So, on one side you, the customer, are wearing off your sandals circling the insurer for claim settlement, and on the other hand, your insurer is delaying the claim, and at the same time, maintaining a good ratio.

Low earnings initially:

A start-up insurer may not have a substantial premium earning in the initial years of operation and the claims experienced may be high.

As such, the Incurred Claim Ratio will tend to cross the 100% mark which should not be absolutely interpreted as the insurer making a loss because the initial years may have a higher claim incidence.

The table below shows the Incurred Claim Ratio (ICR) of some insurers for the years 2012-13 and 2013-14 for as per the IRDAI’s Annual Report.

Name of the company

ICR for 2012-13

ICR for 2013-14

United India



National Assurance






New India Insurance



ICICI Lombard






L & T



Bajaj Allianz



Bharti AXA



Future Generali



Apollo Munich



Max Bupa



Therefore, while we see ICICI Lombard and HDFC Ergo have increased their Incurred Claims Ratio significantly, there has been a downward trend in the ratios of New India, Bharti AXA, Future Generali and L&T.

The aggregate ICR of the whole health insurance sector showed a rise in 2013-14 to 101% from 94.92% in the year 2012-13.

Therefore, while the growth in ratio is music for your ears, it is a cause of concern for health insurers since it affects their profitability.

Be smart while choosing your health insurance provider because a low ICR will spell trouble for you because what good is your health plan if the claim is not settled promptly.

Compare the ratios, look into other factors, such as plan benefits, coverage and premium rate, and buy the best plan for your needs.


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