When researching or reading about health insurance, you may come across two similar-sounding terms – Claim Settlement Ratio and Incurred Claim Ratio. Read on to understand the difference between the two and an OPEN SECRET that many of you may not know.

What is Claim Settlement Ratio?

Claim Settlement Ratio is the ratio of total claims settled to the total claims filed. 

Claim Settlement Ratio = Total Claims Settled/Total Claims Filed

For example, if the claim settlement ratio of an insurer is 75%, it means this company settled 75 out of the total 100 claims made by policyholders. Here, you may wonder what happened to the remaining 25% claims? Were they rejected? 

The answer is not exactly negative. What it means is that the remaining 25% claims were either pending with the insurer or rejected. 

What is Incurred Claim Ratio?

If you have ever opened IRDAI’s annual report, you would have seen the data on Incurred Claim Ratio of General and Health insurance companies. Reading for the first time, you may have confused it with the claim settlement ratio. They are not the same. 

So, What is the Incurred Claim Ratio?

Incurred Claim Ratio is the ratio of net claims incurred by an insurer to the actual premium collected by it during a period.  

Incurred Claim Ratio = Net Claims Incurred/Net Premium collected

For example, if the incurred claim ratio of an insurance company is 75% for 2022-23, it means for every Rs 100 collected during the period, this company spent Rs 75 for claim settlement. Here, Rs 25 would be the profit of the company. 

Note: Incurred claim ratio indicates a company is in loss when it is above 100%

So, what is the OPEN SECRET I talked about earlier?

Here it is. 

Claim Settlement Ratio (CSR) does not apply to Health Insurance! It is applicable toLife Insurance companies. 

Only Incurred Claim Ratio (ICR) is applicable to health insurance and other non-life insurance companies. 

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Should you check the Incurred Claim Ratio before buying health insurance? 

Yes, to some extent, but not always. 

ICR gives an indication of how much you may trust an insurer when it comes to claims. 

Higher ICR is good for policy buyers. It means the company is spending more on claims made by policyholders. Higher ICR is, however, bad for the company. As it indicates the company is not making more profit.

Note: ICR may not always give a clear picture. For example, suppose you have to compare two health insurance companies. It will be easy for you if there is a difference between the ICRs of both companies. However, if the ICRs are equal, then you won’t be able to judge which company is better. As the ICR doesn’t reveal the speed at which a company has paid claims. So if ICRs of two companies are equal, you can’t say which of the two is more efficient in settling claims. 

What else should you look at while buying health insurance?

Now you know that ICR alone is not enough to help you judge the efficiency of an insurance company. 

You should try to have a clear understanding of features of the policy, exclusions, coverages etc. If you know all the terms and conditions of your policy, the chances of claim rejection would decrease. As most of the times, claims are rejected when policyholders are not fully aware of the conditions put by insurers!

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