- Definition of ICSR
- Calculating ICSR
- Importance of ICR
Incurred Claim Settlement Ratio
In most insurance articles, we ask you to check the claim settlement ratio and incurred claim settlement ratio before buying a health insurance plan.
Is it that important? Yes, it is!
Let us tell you why. Read the article to understand the reason why it is necessary to check and compare the incurred claim settlement ratio of various general insurance companies.
What is the Incurred Claim Settlement Ratio?
Incurred Claim Settlement Ratio (ICSR) is a crucial metric in the insurance industry, particularly in health insurance. It measures the financial health of an insurance company by comparing the total amount of claims paid out to the total premium collected over a specific period.
POV- It is the baseline for rating the performance of any insurance company.
FYI- Once a year, IRDAI publishes the claim settlement ratio or incurred claim settlement ratio of every general and life insurance company.
Key Takeaways
- ICSR measures the financial health of the company. It assesses an insurance company’s ability to handle claims by comparing total claims paid to total premiums collected.
- Consider other important factors besides ICSR like coverage, network hospitals, premiums, exclusions, and customer service when choosing health insurance.
- ICSR is crucial for choosing health insurance, it helps assess financial stability, claim settlement practices, risk assessment, and policyholder protection.
How to Calculate Incurred Claim Settlement Ratio?
By using a simple formula, the companies and IRDAI calculate the incurred claim settlement ratio. It goes like dividing the total number of claims paid out by the premiums collected within the financial year.
ICSR = (Total Claims Paid / Total Premium Collected) x 100
Here,
Total claims paid are all the claims that have been settled by the insurance company, regardless of whether the claim was fully or partially paid.
Total premiums calculated are the total amount of money the insurance company has received from policyholders as premiums.
Let us understand this with an example” An insurance firm receives Rs 10 Lakh in premiums and spends Rs 9 Lakh in resolving claims.
According to the formula of incurred claims settlement ratio,
(Rs 9 Lakh / Rs 10 Lakh) x 100 = 90
So, the incurred claim settlement ratio of the company is 90% for that year.
Interpretations
- ICSR < 100%: This indicates that the insurance company is making a profit and can comfortably handle claims.
- ICSR = 100%: This means the company is breaking even, neither making a profit nor a loss.
- ICSR > 100%: This suggests that the company is paying out more in claims than it is collecting in premiums, which could be a sign of financial instability. Though this situation can be good for the policyholder, in the long run, the company can suffer and be bankrupt.
How Incurred Claim Settlement Ratio Help in Choosing the Right Health Insurance Plan?
The incurred claim settlement ratio is the key indicator for choosing health insurance. Yes, you have heard it a lot. Have a look below to know why:
- Shows financial stability
It shows the financial stability of the company. A high ICSR indicates that the insurance company is paying out more in claims than it’s collecting in premiums. This could signal financial instability, raising concerns about the company’s ability to pay claims in the future. Meanwhile, a less than 100% ICSR suggests that the insurance company is financially sound and can comfortably handle claims. This is a positive sign for you. - Shows claim settlement practices
A low ICSR often correlates with efficient claim settlement practices. This means the insurer is likely to process claims quickly and without unnecessary delays or complications. A high ICSR might indicate issues with claim settlement, such as delays or denials. - Risk assessment
A low ICSR can suggest that the insurer has effective underwriting practices, meaning they accurately assess risks and charge appropriate premiums. And, a high ICSR indicates that the insurer has underestimated risks, leading to higher claim payouts than expected. - Protection of the policyholder
A low ICSR provides policyholders with greater financial security, as it indicates that the insurer is likely to be able to pay claims when needed. Meanwhile, a high ICSR raises the risk that the insurer may not be able to meet its obligations, leaving policyholders vulnerable.
All in all, the incurred claim settlement ratio between 80% to 95% is a favourable condition.
Deciding Factors: Things to Consider while Calculating ICSR
When calculating the Incurred Claim Settlement Ratio (ICSR), it’s essential to consider the following factors,
- Make sure that all the claims are accurately recorded by the company.
- Check how much time a company takes to settle the claim.
- Also, see how old is the company. Meaning, how much time they have served in the market.
Where to Check the Incurred Claim Settlement Ratio of the Insurance Company?
We have collected the data and saved it in the data labs section of the PolicyX website. You can visit this section by clicking here. You can also check other data like solvency ratio, insurance density, premiums and much more to make a calculated decision before investing in health insurance.
To ask further reach us at 1800-4200-269.
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Incurred Claim Settlement Ratio: FAQs
1. What is a good incurred claim settlement ratio?
A percentage between 80 to 95% is considered a good incurred claim settlement ratio.
2. What is the difference between CSR and ICR?
CSR focuses on the settled claims, meanwhile incurred claim settlement ratio looks at the total claims paid divided by the total premiums earned.
3. Which company has the highest incurred claim settlement ratio in India?
According to the IRDAI data released in 2024, the highest incurred claim settlement ratio is of Raheja QBE General Insurance company.
4. Is a high ICSR a bad sign for a company?
While a high ICSR might indicate that the insurance company is paying out more claims than earnings in premiums, it’s essential to consider other factors. For instance, a company might have recently experienced a major disaster or a significant increase in healthcare costs, leading to a temporarily high ICSR. However, a consistently high ICSR could raise concerns about the company’s financial health.
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Written By: Simran Saxena
An explorer and a curious person, Simran has worked in the field of insurance for more than 3 years. Travelling and writing are her only passion and hobby. Her main agenda is to transform insurance information into a piece that is easy to understand and seamlessly solves the reader’s query.
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