How is the Incurred Claim Ratio calculated for Health Insurance?


There has been a significant rise in the work-life imbalance, which has led to multiple health-related issues in young individuals. Taking into consideration the rising health issues across the globe, we cannot stress more on the importance of buying health insurance at an early stage.

Compared to the last decade, the necessity of healthcare has increased tremendously. People are now aware of different health insurance plans available in the market. With this rising awareness, insurers are now offering new and bespoke health plans to the consumers.

People now have multiple choices when buying healthcare plans. But choosing the right plan can be a daunting task. Hence, it is advisable to compare health plans based on certain parameters. One such factor that you should compare different health insurance plans is the Incurred Claim Ratio.

In simple terms, the Incurred Claim Ratio determines the performance of the insurer. It is the ratio of the net claim settled by the insurer to the net premiums collected in the given financial year.

Incurred Claim Ratio is calculated as follows

Incurred Claim Ratio = Net Claims Settled / Net Premiums Collected

Consider the following example for a better understanding

Let us assume that a company earned INR 10 lakhs in premiums for the year 209-20. It has settled claims of up to INR 9 lakhs. Hence, based on this information, the Incurred Claim Ratio of the company will be 90% for the year 2019-20.

What Is The Significance Of The Incurred Claim Ratio?

It is a good sign that the insurer you have chosen to buy health insurance with has a high Incurred Claim Ratio. This indicates that the insurer/company has a high possibility of compensating you in case of a claim. Hence, it is highly advisable to buy health insurance from an insurer with a high Incurred Claim Ratio.

A high Incurred Claim Ratio, from an insurer’s perspective, means low profits. For the example above, the company has a ratio of 90%. This means that 90% of the premiums earned in the said year are spent towards compensating the claims. The remaining 10% is the profit earned by the company. In case the ratio increases from 90% to 95%, the profit margin for the company decreases from 10% to 5%.

If the Incurred Claim Ratio is higher than 100%, it indicates that the company is facing losses. In other words, the premiums collected are insufficient to settle the claims registered.

To Sum It Up!

Even though the Incurred Claim Ratio is a significant parameter that helps determine the insurer’s performance, it is not the only thing that you need to consider when buying health insurance. Look and compare factors such as the health insurance benefits, the policy coverage, the premiums charged.

You must conduct in-depth research on different health insurance plans available in the market. Choosing an insurer that offers affordable premiums but has a very low ICR will only mean that your claims will not be settled promptly.

Evaluating several parameters will help you choose a plan that is best suitable for your medical-related needs.