Claim Settlement Ratio vs. Incurred Claim Ratio: Which Metric Matters More?

Understanding Claim Settlement Ratio

The claim settlement ratio is a metric that represents the percentage of the total number of claims settled by the insurance company against the total number of insurance claims it received in a financial year. Here is a formula:

Claim Settlement Ratio = (Total Number of Claims Settled/Total Number of Claims Received) X 100

For example, if an insurance company receives 1,000 claims in a year and settles 960 claims successfully in that financial year, then the claim settlement ratio is 96%.

Understanding Incurred Claim Ratio

Incurred claim ratio is the metric that represents the percentage of total health insurance claims paid by the insurance company in value against the total amount of premium collected in the financial year. Here is a formula:

Incurred Claim Ratio = (Total Value of Claims Paid/Total Amount of Premium Collected) X 100

For example, if an insurance company collects INR 1,000 crore in premiums during a financial year and settles claims worth INR 890 crore in that year, then the incurred claim ratio or ICR would be 89%.

The CSR or Claim Settlement Ratio Vs the ICR, i.e. the Incurred Claim Ratio

The following are the differences between the claim settlement ratio as well as the incurred claim ratio:

How to Evaluate Health Insurance Using the Claim Settlement Ratio along with the Incurred Claim Ratio?

Here is what the claim settlement ratio matters in the evaluation of a health insurance policy:

1. It indicates how efficient the insurance company is in honouring insurance claims
2. It also gives insight into the claim settlement process of the insurance company – how the insurer makes hassle-free and quick settlement of cashless claims.
3. A consistently high claim settlement ratio of the insurer over the years instils confidence among the insured.

Here is what the incurred claim ratio matters in the evaluation of a health insurance policy:

1. Its percentage of incurred claim ratio indicates the financial health of the insurance company- how much the company is paying vs. how much it is earning through premium collection.
2. A percentage below 50% shows the company is denying more claims and is more focused on profits. ICR above 100% reflect negatively on the long-term sustainability of the insurance company.
3. ICR between 50% - 100% indicates that the company is effectively balancing the claim payouts and earnings.

Which Metrics Matter the Most? Claim Settlement Ratio or Incurred Claim Ratio?

Each metric is an indicator of different things, such as efficiency and financial soundness. It is wise to combine both ratios and use them to evaluate the health insurance policy. To choose the right health insurance policy, it is important to consider various other factors along with the claim ratios, such as hospital network, customer reviews, features, cost and more.

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Conclusion

To conclude, it is important to understand the track record of the health insurance companies while you buy health insurance. Performance indicators like claim settlement ratio and incurred claim ratio play a critical role in the evaluation of health insurance policies. Consider all the critical factors and ratios while buying health insurance to make a rational choice.