One of the best investments you can make these days is in insurance. Additionally, it can be a lifesaver in any unfortunate situation and prevent you from burning a hole in your wallet. Although purchasing insurance is a wise move, the choice is not always easy to make. When buying one, several things need to be taken into account.
In the insurance industry, claims represent the other end of the spectrum. Therefore, it is crucial to comprehend and assess a company's claim settlement rate and procedure. While some insurance companies may have longer processing times or delays, few are known for their excessive or pointless denial or rejection of claim requests. You may experience financial hardship as a result. To avoid such possibilities, reviewing the insurance company's Claim Settlement Ratio (CSR) and Incurred Claim Ratio (ICR) is crucial.
What is the Incurred Claim Ratio?
ICR is the ratio of the total claims paid out by an insurance company to the total insurance premiums they have collected over time. Let's look at an illustration to comprehend this definition better:
ICR for Company A is 65%. This means that the company pays INR 65 as a claim settlement for every INR 100 in collected premiums. The business keeps the remaining INR 35 as profit.
The annual calculation of the incurred claim ratio helps the policyholder confirm the total claims paid out by the insurance company in a given year. It is thus considered to be one of the most critical factors. The Insurance Regulatory and Development Authority of India (IRDAI) publishes the annual incurred claim ratio for all general and health insurance companies. In addition, the insurance regulator offers the company's overall ICR and separate ICRs for various general insurance types.
How to Analyse an ICR value?
ICR provides information on the company's capacity to pay claims. The company pays out more claims than it receives through premiums if the ICR exceeds 100%. As a result, it shows that the business is losing money and will find it difficult to maintain its financial position over time. The company has two options to address this issue: raise the price of the premium payments it receives or substantially alters the policy to generate a profit. Such companies generally deny borderline claims.
The best claim settlement ratio is thought to be an ICR of 50% to 100%, which shows that the business has successfully launched a quality product and is turning a healthy profit. A company is considered perfect if its incurred claim ratio is between 75% and 90% because it means it is simultaneously profitable, providing high-quality products, and exceeding customers' expectations.
If the ICR is less than 50%, the insurance provider is likely earning extremely high profit margins. This figure indicates that the company is either rejecting claims or raising premiums. Both these options are not advantageous to customers.
What is the Claim Settlement Ratio?
CSR measures the proportion of claims that are settled to those that are filed. Let's look at an example once more to understand CSR better.
With a CSR of 80%, Company B has paid out 80 of the total 100 claims it received. The remaining 20 claims can either be considered rejected or pending.
CSR is a great way to assess the strength of an insurance provider. However, the IRDAI does not publish CSR data for health insurance the same way it does for life insurance. The CSR information available on health insurance websites. The CSR is more likely to reveal the general insurance settlement.
How to Analyse CSR?
The claim settlement ratio is a gauge for determining an insurance company's financial strength. Therefore, a high claim settlement ratio is viewed as favorable because it shows that the health insurance company's claim settlement procedure is quite robust in contrast to a company with a low claim settlement ratio.
However, it is not regarded as a complete metric to rely on for the successful settlement of health insurance claims, as the CSR data found on websites is more likely to indicate the settlement for just general insurance. Additionally, CSR does not consider how long it takes to resolve an insurance claim. So, even though claims take time to resolve, a company can still have a high claim settlement ratio.
Difference Between CSR and ICR
- The incurred claim ratio is regarded as a more accurate feature when choosing your insurance policy provider because it indicates how simple it will be for you to submit claims. On the other hand, when evaluating health insurance plans, the claim settlement ratio is not thought to be a completely reliable indicator.
- The time needed to resolve claims is typically taken into account by insurance companies when determining the incurred claim ratio. However, the claim settlement ratio is not considered in this calculation.
- To calculate the incurred claim ratio, both the total amount of claims settled and the total amount of premiums paid must have the same tenure. Contrarily, in the case of claim settlement ratio, it can be within six months to a year.
Health insurance companies' incurred claim ratio and claim settlement ratio should not be used synonymously. In contrast to the health insurance claim settlement ratio, which only considers claim settlement, the incurred claim ratio has a broader focus. In addition, referring to only these two ratios won’t give a complete picture. You can also consider commission expense, persistency, solvency, and combined ratios to make an informed choice about a health insurance policy.
Conclusion
Even though the incurred claim ratio and claim settlement ratio might not give you the clearest picture, they will undoubtedly give you a good idea of the insurance company's financial standing. As a result, you should examine and compare the ICR and CSR of a few reputable insurers in your area before selecting a trustworthy health insurance provider.
