Claims Ratio in Health Insurance - Importance

Rising medical costs have urged people to buy health insurance. We live in a day and age where it has become almost a compulsion for people to invest in the best possible health insurance plan to safeguard their savings from going down the drain in one go. Needless to say, every individual, be it a kid or a senior citizen, everyone wants financial stability so that they can handle high medical bills if they fall victim to an unexpected medical emergency. 

When it comes to buying an ideal health insurance, there are multiple factors such as sum insured, medical history, network hospitals, claim process and others that one considers. Out of all, one of the most significant elements is Claims Ratio. 

What is Claims Ratio?

When buying health insurance, customers face a doubtful situation where it becomes hard for them to understand that whether or not the insurance company will settle the claim. To make things easy, it is advised to keep a check on claims ratio to gain an idea about the company’s claim settlement. 

There are two claim ratio that you should be aware of before investing in health insurance. They include Claim Settlement Ratio and Claim Incurred Ratio. 

• Claim Settlement Ratio 

Claim Settlement Ratio or CSR is the ratio of claims settled by a health insurance company against the total claims filed in a particular financial period.

For instance, if a company has received 100 claims and it approves 70 claims, its Claim Settlement Ratio would be 70%. The other 30% would be either pending or rejected by the insurance company. 

When Can Health Insurance Claims Be Rejected? 

A high claim settlement ratio is considered good as it indicates that the claim settlement process of the health insurance company is quite strong in comparison to the one that has a low claim settlement ratio. 

Note that the Claim Settlement Ratio for a health insurance company cannot be more than 100%. 

• Claim Incurred Ratio 

Claim Incurred Ratio or Incurred Claim Ratio or ICR is the proportion of claims paid out against the total amount of premiums received during a particular financial period. 

For instance, if a health insurance company has approved a total of Rs. 80 Crores of claims against Rs. 100 Crore of premium received, the Incurred Claim Ratio would be 80%. 

A low Incurred Claim Ratio indicates that the health insurance company’s claim settlement process is highly rigorous. Take note that a health insurance company with a high ICR or more than 100% ICR becomes a doubt for many. The reason behind is simple. ICR depicts the ability of an insurance company to make payments towards claims. If a health insurance company gives away more amount of money as claim than the amount collected as premium, it would find it hard to sustain, which in turn, will end in rejection of some claims, increased prices or changes in product. 

A company having Incurred Claim Ratio between 75% to 90% is said to be perfect as it indicates that the company is making profits, offering qualitative product, and meeting the expectations of the customers at the same time. 

Difference between CSR & ICR 

When buying a health insurance policy, most people get confused between ICR & CSR and end up thinking that both the terms are one and the same. 

However, clearly, that’s not the case!

While ICR = Incurred Claims/Net Premium, where 

Incurred Claims = Claims Paid + OS claims at the end of period - OS claims at the beginning of the period & 

Net Premium = Premium - Ceded Premium to Reinsurers - Commission

CSR = Number of claims settled/Number of claims received 

Importance of Considering CSR & ICR 

Now that you are aware of the basics of CSR and ICR, it would be clear to you that they play a significant role in the selection of a health insurance. So, make sure you do emphasise CSR & ICR both while choosing a health insurance company and its plan so that you know in advance how safe are you in case you make a claim and whether you & your loved ones will be financially secure in case an emergency medical situation arises.

P.S. ICR & CSR may be two of the most vital elements to consider while buying health insurance, however, it doesn’t mean the two are enough for making a decision. When looking for options, it would be important for you to focus on other aspects such as network hospitals, lifelong renewable feature, sum insured range, benefits, discounts, waiting periods, and multiple others.

Importance of the Claim Ratio

A higher claim settlement ratio incurred by an insurance company is excellent information for all the policyholders as it means that the company is successfully paying for the claims registered by the policyholders. Henceforth, a policyholder can put a higher degree of trust on all the insurance companies that have a higher incurred claim settlement ratio.

While, seeing from the point of view of an insurance company a high incurred claim ratio means lower profit margin. For example, XYZ insurance company collected a premium of Rs 10 lakh and settled Rs 8 lakh in claim settlement, then the incurred claim ratio is 80%. Here it signifies that 80% of collected premium is utilized in settling the claim and the remaining 20% is profit margin. In case, next year the claim ratio increases to 90%, then the profit would decrease to 10%. This increase would when on one hand be bad for the insurance company while, on the other hand it is considered to be good from the perspective of the customer. If the ratio of claim settlement is more than 100%, then it is not ideal for the insurance company as the premium collected is also not sufficient in paying the claims and the insurance provider is using its reserves to settle the claims.

Things to Remember about Claim Settlement

Incurred claim ratio can be taken as a good measure to map out the performance of the insurance company, yet it still shows an incomplete picture of the insurance company’s performance. Alongside, incurred claim ratio, you should also consider the below points while selecting an insurance company:

• Lower earnings in the start

There might not be substantial premium earnings recorded for a start-up insurance company in the starting years of the operations, while the claims incurred may also be on a higher end. Therefore, due to this fact, the incurred claim ratio may exceed the 100% mark which shouldn't be seen as the insurance company incurring heavy losses as the initial years might have higher chances of registered claim.

• Duration of Claim Settlement

Although, the ratio can be considered for measuring the numbers of claims settled yet it cannot be taken as a measure to check the amount of time taken to settle these claims. So, even in case, an insurance company has a claim settlement ratio in the range of 80%-90% yet there is a possibility that the entire process may have taken a long time around 5-6 months and the entire experience can turn out to be hassling for the customer. Therefore, this is a major point that should be looked at before buying an insurance plan as on one hand the insurance company can present a good claim settlement ratio to get the confidence of the customer yet on the other hand the insurer might be delaying the entire process.

Top 10 Health Insurance Companies (Based on CSR) With Their ICR

Let us understand the basic difference between CSR and ICR by referring to the below-mentioned list of top 10 health insurance companies. 

Please note that the list of top 10 health insurance companies has been created based on CSR for the year ended March 31, 2019. 

CSR - According To IBAI’s General Insurance Claim Insights Handbook For Policyholders - 4th Edition; ICR - IRDAI Annual Report 2018-2019

It is to be noted that A HEALTH INSURANCE COMPANY WITH HIGH CSR & LOW ICR IS CONSIDERED IDEAL.

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Conclusion 

When choosing a health insurance company, keep in mind to check CSR & ICR on equal basis. 

Focusing on the consistency of CSR & ICR values over the past few years would be crucial as well and give you an idea about the health insurance company’s history in terms of claim settlement. Remember, CSR & ICR may or may not be consistent in terms of % as the numbers depend on premiums and claims.

Nonetheless, remember that an Ideal Health Insurance Company will have a High Claim Settlement Ratio and Low Incurred Claim Ratio. 

Both the ratio may not help you entirely get the best possible health insurance deal without any hassle, but you can be rest assured the numbers will definitely help you get the best value for your money. 

Note: 

The IRDA or Insurance Regulatory and Development Authority publishes an annual report related to the performance of the insurance company. To gain specific information regarding the claims ratio, you can check previous annual reports and the latest annual reports to see where a particular company stands. 

If interested in learning more about health insurance companies and their CSR & ICR, please visit our website. 

For more in detail, you can also get in touch with InsuranceDekho experts at 18001205698.