Every year, IRDA (Insurance Regulatory & Development Authority) publishes Incurred Claims Ratio (ICR) data in its annual report. ICR is one of important factors that you can consider when shortlisting a health insurance plan.
What is Incurred Claims Ratio (ICR)?
Incurred Claims Ratio is nothing but the total value of all claims paid by the health insurance company divided by the total amount of premium they collected in the same period. Incurred Claims Ratio indicates the company’s ability to pay the claims.
As an example a 70% incurred claims ratio means that for every Rs 1000 of premium earned in a given accounting period, Rs 700 is paid back in the form of benefits (claims). Incurred Claim ratio is the ratio of the claims settled to the premium received.
So, how to analyze the ICR data? Whether a Non-life Insurance company which has say ICR of 110% is better than a company which has incurred claims ratio of say 75%?? Let us now understand this point.
If ICR is greater than 100%, it means that the company has given more money away as claims than what it has collected as premium. This is not good for the company.
If ICR is less than 100% say in the range of 60% to 90%, it means that the health insurance company has given lesser amount as claims than what it has collected. It means that they are making profits.
If ICR is very low say less than 40%, it means that either the company is charging higher premium rates than its peers and making huge profits (or) it has a good pool of low-risk (may be youngsters) profile individuals as clients (or even both).
Hence it is better to be with an insurance company which has neither high nor low incurred claim ratio. I believe that the ideal ratio (percentage) range can be anywhere between 60% to 90%.
Claim Settlement Ratio Vs Incurred Claims Ratio
The main difference between Incurred Claims Ratio and Claim Settlement ratio is – Incurred Claim ratio is the ratio of the claims settled to the premium received. Claim Settlement Ratio (CSR) is the ratio of claims approved to total claims made (received). The higher the CSR the better. Same is not the case with ICR.
Non-Life Insurance companies provide products under various segments like Motor, Health, Home, Personal Accident, Travel, Marine and other types of Insurances. In this post, we are analyzing the ICR details of Health Insurance vertical only. Also, note that Health insurance plans are primarily offered by Non-life insurers and also by stand-alone health insurance providers.
Non-life Health Insurance Business in India 2017-18
At the end of March 2018, there are 68 insurers operating in India; of which 24 are life insurers, 27 are general insurers, 6 are Standalone health
insurers exclusively doing health insurance business.
During the F.Y. 2017-18, the following 4 new companies have been registered as General Insurance Companies in India:
- DHFL General Insurance Limited
- Acko General Insurance Limited
- Go Digit General Insurance Limited
- Edelweiss General Insurance Company Limited.
Insurance Penetration & Density
The penetration of non-life insurance sector in the country has gone up from 0.56 in 2001 to 0.93 in 2017 (0.77 in 2016). Its density has gone up from USD 2.4 in 2001 to USD 18.0 in 2017 (13.20 in 2016). (Insurance penetration is measured as the percentage of insurance premium to GDP, insurance density is calculated as the ratio of premium to population (per-capita premium).
Trend in Premium Collection
- The general insurance industry including Standalone Health Insurers underwrote total direct premium of Rs 150662 crores in India for the year 2017-18 as against Rs 128128 crores in 2016-17, registering a growth rate of 17.59% as against 32.94 percent growth rate recorded in the previous year.
- The public sector insurers exhibited growth of 12.58 percent in 2017-18, over the previous year’s growth rate of 26.27 percent. The private general insurers registered a growth rate of 21.59 percent as against 35.55 percent growth rate during the previous year.
- The market shares of all the public sector insurers except New India has decreased from previous year.
- ICICI Lombard continued to be the largest private sector general insurance company, with market share of 8.20 percent in the current year against a market share of 8.37 percent in the previous year. Bajaj Allianz is the second largest Insurer.
- The premium collection in Health segment continued to surge ahead at Rs 41,981 cr in 2017-18 from 34527 crores of 2016-17, registering growth of 21.59 percent.
- The market share of health segment in overall General Insurance market has increased to 27.86 percent from 26.95 percent of previous year.
- The standalone health insurers registered a growth rate of 41.93 percent against 41.06 percent growth rate during the previous year.
- During the year 2017-18, the total PAT of general insurance industry was Rs 6,909 cr as against a profit Rs 845 cr in 2016-17.
- Out of four public sector insurers, three have reported PAT and one (National Insurance) has reported loss during the year 2017-18.
- Among the twenty-one private general insurance companies, while fourteen companies reported PAT, the remaining seven companies incurred losses during 2017-18.
- The PAT of Bajaj Allianz (highest, followed by ICICI Lombard) during the year 2017-18 was Rs 921 cr against PAY of Rs 728 cr in the year 2016-17.
- The insurers which reported losses after tax were Acko General, Bharti AXA, DHFL General, Edleweiss General, Go Digit, Kotak Mahindra and Liberty.
- Out of six standalone health insurers, three have reported loss and three have reported PAT during the year 2017-18. The three standalone health insurers which reported PAT during the year 2017- 18 were Apollo Munich, Max Bupa and Star Health. Apollo Munich, Max Bupa and Star Health reported PAT of Rs 15 cr, 23 crores and Rs 170 crores respectively during the year 2017-18.
Health Insurance Incurred Claims Ratio 2017-18 | Latest IRDA Annual Report
- The overall Incurred Claims Ratio of public sector insurer for Health insurance vertical is 110% in 2016-17. This clearly a not a good sign but better than previous year’s. May be, this is one of the reasons why PSU insurers have increased their premium rates significantly in the last few years.
- The overall Incurred Claims Ratio of private sector insurer for is 71% in 2016-17, which is almost the same as in 2016-17.
- Whereas, the stand-alone health insurers have a low ICR of around 59%.
Let’s now look at insurer-wise latest health insurance incurred claims ratio 2017-18 details; (The data of the new Insurers Acko, DHFL, Edelweiss & Go Digit have not been considered for the analysis.)
Below are the details of Stand-alone Health Insurers’ incurred claims ratio during 2017-18.
- The incurred claims ratio of all four public sector General Insurance companies was more than 100% in 2017-18 as well.
- The incurred claims ratio of the Private Sector non-life insurance companies (health insurance vertical) was 71% during 2017-18.
- The incurred claims ratio of the stand-alone Health Insurance companies was 59% during 2017-18 which is higher than the previous year ratio of 56%.
- You can notice that all of the Public sector non-life insurance companies like National Insurance, New India, Oriental & United have Incurred Claim Ratios of more than 100%.
- As far as Private General Insurance companies are concerned, the ones which have reasonable and are close to total average ICR (avg ICR of all Pvt companies is 71%) have been highlighted in GREEN. You may prefer buying health insurance policies from these companies.
- The stand-alone ones or the specialized health insurance companies like Apollo Munich, Aditya Birla, Max Bupa, Religar & Star Health have decent Incurred Claims Ratio which is around 60%. So, these can be preferred to other ones when buying a mediclaim or family floater health insurance plans.
Top 10 Best Health Insurance Companies based on Incurred Claims Ratio 2017-18
I have analyzed and short-listed the best non-life & stand-alone health insurance companies based on the latest Incurred Claims ratio data.
- Bajaj Allianz
- ICICI Lombard
- Apollo Munich
- Star Health
- Royal Sundaram
- TATA AIG
- Future Generali
- Aditya Birla
- IFFCO Tokio
Below table gives you an idea on aging of claims, settled through both TPA (Third Party Administrator) and In-house;
How to buy best Health Insurance plan/policy?
When it comes to health insurance, there is no one-size fits-all plan that you can rely on. Medical Insurance is a contract based policy with legal jargon thrown in. Besides this, a Health Insurance policy has medical terminologies. Of the numerous medical insurance plans in the market, you may find that each one is unique in some way or the other, with its own benefits and limitations.
The Incurred Claim Ratio (or) Claim Settlement Ratio can help you in shortlisting the best health insurance companies but you have to do a lot of research to identify the right and best health insurance plan which suits your requirements. You have to make a comparison of health insurance plans offered by multiple companies. This is where I believe that health insurance comparison websites could be beneficial.
Kindly note that having a health insurance plan is not the end of your ‘medical insurance’ planning. In fact, it is your first-line of defense only. Considering the ever-increasing medical treatment expenses in India, you have to plan for a mediclaim /family floater + a Super top up plan + an Emergency fund for unforeseen consequences. Don’t depend entirely on health insurance plan alone!
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Actually, Claim Settlement Ratio can be a better indicator than ICR for shortlisting best health insurance companies. But IRDA does not publish CSR details for Health Insurance in its annual report. The CSR details are available in respective company websites.
(Image courtesy of fantasista at FreeDigitalPhotos.net) (Data Source : IRDA Annual Report 2017-18) (Post first published on : 09-January-2019)