What is a Claim?
Before tackling the ratios, we must first understand what is Claim. A claim is a formal request by a policyholder to an insurance company for coverage or compensation for the insured amount as decided in the policy agreement. The insurance company validates the claim and if approved then issues payment to the insured person or an approved interested party on behalf of the insured person.
What is the Claim Ratio in Health Insurance?
The claim ratio is the percentage of claims costs incurred to the premiums earned by a Health Insurance Company.
Some Important Key Facts about the Claim Ratio :
- Insurance Company’s Claims Paying Ability Rating (CPRs) from the Investment Information and Credit Rating Agency (ICRA) should be good.
- Company’s Settlement Claim Ratio should be consistent.
- This Claim Ratio Report is published every year.
- Claim Settlement Process must be easy and quick.
There are three types of claim Ratios that one must know :
- Claim Settlement Ratio
- Claim Pending Ratio
- Claim Repudiation Ratio
What is claim Settlement ratio?
Claim Settlement Ratio is the percentage of claims settled out of the total number of claims filed. For instance, if the claim settlement ratio of an insurer is 91%, it means that the insurer has settled 91 claims out of the total 100 claims filed.
The Claim Settlement Ratio report announced on yearly basis by the Insurance Regulatory and Development Authority of India (IRDAI). Like RBI (Reserve Bank of India) for Banking and SEBI (Securities and Exchange Board of India) for Security and Equity, IRDAI is regulatory for Insurance sector in India
Claim Settlement Ratio = Total Number of claims Accepted / Total Number of claims received
Higher claim settlement ratio implies that the majority of claims are settled and paid.
What is Claim Pending Ratio?
It is a ratio of the number of claims unpaid to the total claims received by the company. For example,If an Insurance Company received 100 claims and among them 35 claims have not been settled and they have not been paid by the company yet then claim pending ratio of that company is 35%.
Claim Pending Ratio = Total Number of claims outstanding / Total Number of claims received
What is Claim Repudiation Ratio?
It is a ratio of the number of claims rejected by the company to the total claims received.
Claim Repudiation Ratio = Total Number of claims Rejected / Total Number of claims received
What are the Most Common Reasons for Rejection of Insurance Claims?
- Incorrect information
- Misrepresentation of data
- Policy Lapse due to miss paying the premium
- Non-disclosure of Existing Insurance Policies
- If nominee Information is not updating
Also Read : Top 10 Best Health Insurance Plans In India
Here is an example to explain above formulae :
Suppose a life insurance company receives 1,000 claims in a period of one year and among them
- They accepted 965 claims and paid them
- They rejected 25 claims
- And remaining that is 10 claims are pending
- So, the Claim Settlement Ratio (965/1000)*100 = 96.5%
- The Claim Pending Ratio (25/1000)*100 = 2.5%
- The Claim Repudiation Ratio (10/1000)*100 = 1%
How to Calculate Incurred Claim Ratio?
The Insurance Regulatory and Development Authority (IRDA) publishes the claims index for health insurance companies in India. The amount is essentially equal to the total value of all claims paid by a company divided by the total amount of the premium invoiced during the same period.So it is the ratio of net claims paid by an insurance company to the net premiums earned means the total sum of premium collected during the same period.
Incurred Claim Ratio = Net Claims Paid / Net premiums Collected
Incurred Claim Ratio 2019 of different companies published by IRDA are as follows :
|Insurance Company||ICR for 2016-17|
|ICR for 2017-18 |
|IFFCO – TOKIO||104.3||90.69|
Difference between Claim Settlement Ratio and Incurred Claim Ratio :
When purchasing an Insurance Plan, it is possible that terms such as the Claim Settlement Ratio and Incurred Claim Ratio have been identified. As a layman, it is not possible to find any difference between them. But this is not the truth. Read on to learn more.
Comparing the Insurance Plans of different insurers can be a very confusing task.There are so many subjective problems that we take into consideration while we do our research. However, we generally ignore the objective numbers as well as figures.
The Incurred Claim Ratio and the Claim Settlement Ratio are two objective factors that cannot be ignore when an insurance plan is stipulated. We will discuss in detail the actual differences between these two indices to help you determine the best Insurance Plan in India.
Claim Settlement Ratio…
The amount of credits approved or settled in the total number of claims an Insurance Company received is referred as the claim settlement ratio.
Suppose, for example, that the claim settlement ratio of a given insurance company is 90% means the company approves 90 claims out of total 100 claims received.
Higher the claim settlement ratio of a insurer, there are high chances of your claim getting settled. Since the insurer’s claim settlement ratio reflects its reputation, that’s why it is advisable to first compare this ratio with various insurance companies before going for one.
A high claim settlement ratio of a insurance company also indicates that the claim settlement process is vigorous as compared to the one that has a low claim settlement ratio.
Each year the IRDA publishes a report that details various information about an insurance company such as claims data, the industry average and the claim settlement ratio.
The main purpose of accurate payment of insurance premiums is that the insurer will fulfill all its promises in due course.One way to ensure this is to review the insurance company’s performance and check the claim settlement ratio.
Claim Settlement Ratio applies only to life insurance plans.The claim settlement ratio indicates the total number of credits settled. It is advisable to opt for life insurance company with a high claim settlement ratio.
Incurred Claim Ratio…
The amount of credits paid in the total number of claims an Insurance Company received is referred as the Incurred claim ratio. Suppose, for example, that the Incurred claim ratio of a given insurance company is 81% means the company paid 81 claims out of total 100 claims received.
If the incurred claim ratio of the health/general insurance company is very low, this indicates that the health insurance claims settlement process is extremely rigid.
Experts say the presence of the insurance company on the market may raise doubts about a very high incurred claim ratio. For this reason, it is advisable to opt for a health / general insurance company that has a moderate incurred claim ratio. In short, it would be safe to continue using the same insurance company’s services year after year, without having to worry about rejecting the request.
It is said that the health/general insurance company retains a low amount towards profit-making and in-turn utilizes the amount received as premiums for claim settlement.
The incurred claim ratio shows the claim paying ability of an general/health insurer.
Ideally, a health insurance company / general insurance company should have an incurred claim ratio between 70% to 90%. Incurred Claim Ratio applies only to general and independent health insurance plans. Incurred Claim Ratio is an indicator of the insurance company’s ability to pay claims.
So it is better to choose an health insurance company which has a high claim settlement ratio and neither high nor low incurred claim ratio.The ideal ratio range for incurred claim ratio can be anywhere between 70% to 90%.
The numbers may not tell the whole story, but they can definitely help you to find the best value for your money. Then compare the Incurred Claim Ratio and the Claim Settlement Ratio of different insurers, before going to take the best product in each insurance category.
How to Settle a Claim in Health Insurance?
Answer: The Incurred Claim Ratio indicates the ability of the Insurance company to pay claims.
Answer: It is calculated as total claims paid by the company divided by the total amount of premium earned by that company.
Answer: You can choose a health insurance company by comparing all the factors. Such as go for the insurance company who has a high claim settlement ratio and the incurred claim ratio of that company is neither high nor low, it can be anywhere between 70% – 90%.
choose Best Health Insurance Plan
Answer: Health Insurance and Mediclaim are two different terms. Mediclaim covers only Hospitalization expenses but a health insurance plan covers the entire cost which is more than hospitalization like pre and post hospitalization charges including ambulance expenses
Answer: All the Insurance Companies are instructed by the IRDA to publish their claim ratio in the annual report of the company every year. So we can get that from the company’s website. Otherwise, we can also check that from the Insurance Regulatory Development Authority’s website.
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