In today’s unpredictable times, health insurance has become vital for us all. Now, if you are buying coverage for the first time, you may have experienced some confusion due to the technical jargon used to explain facets of health insurance. In this regard, many policyholders get confused about the difference between incurred claim ratio and claim settlement ratio.

Now, it is also crucial that you are aware of what you sign up for. So, let’s understand both these terms – Incurred Claim Ratio (ICR) and Claim Settlement Ratio (CSR) – today.

What is Incurred Claim Ratio (ICR)?

ICR is the ratio of the total claims settled by an insurer to the total insurance premiums received by the insurance company over a period of time. To understand this definition better, let us take a look at an example:

Company A has an ICR of 75%. This indicates that for every premium of Rs 100 collected, the company pays Rs 75 as claim settlement. The leftover Rs 25 is the amount the company takes as profit.

This metric is important because it tells us about the capability of the company to pay a claim. If the ICR is more than 100%, it means that the company settles more claims than the premiums it collects. Thus, it indicates that the company is incurring losses and will experience difficulty in sustaining financially for a longer period. To remedy this situation, the company can either increase the cost of the premium payments it collects or make fundamental changes to the policy to earn a profit. Such companies generally reject borderline claims.

An ICR between 50%–100% is considered to be the best claim settlement ratio and indicates that the company has introduced a good product and is making a healthy profit. This ratio also gives the indication that there has been a clear effort on the company’s end to understand the health insurance claims process. As a result, even the customers are more aware of when to make insured claims and when not to.

In case the ICR is lower than 50%, it indicates that the insurance company is making extremely high–profit margins. This number is a sign that the company is either charging higher premiums or rejecting claims. Both of these possibilities are not beneficial for customers.

What is Claim Settlement Ratio (CSR)?

On the other hand, CSR is the ratio of the number of claims settled to the number of claims made. Again, let us look at an example to understand CSR better.

Company B has a CSR of 90%, meaning that out of 100 total claims filed, 90 have been paid off.

CSR is an excellent way to measure the health of an insurance company. However, the data related to CSR is not published by the Insurance Regulatory and Development Authority of India (IRDAI) for health insurance the way it is for life insurance. The CSR data found on websites for health insurance CSR is more likely to indicate the settlement for general insurance. Due to this fact, CSR is not the best metric to rely on for the successful settlement of health insurance claims. Also, CSR does not indicate the time taken to settle claims and thus does not paint a holistic picture of the process.

Incurred Claim Ratio Vs Claim Settlement Ratio: Summing Up The Difference

While ICR and CSR are often mistaken as being the same, they are not so. While ICR is equal to the total value of all claims the company has honoured divided by the total premium received during a period, CSR is total settled claims divided by the claims filed.

Now that you know the difference between ICR and CSR, it is clear that the former is a better indicator of the insurance company’s health. Thus, make sure to browse through such data and information carefully before signing up for your health insurance policy.

Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.