How good is your health insurer? Latest incurred claim ratio of general, health insurance companies in India

If you are planning to buy a new insurance policy or port your existing health insurance policy to a new insurer, do remember to check the latest claim settlement ratio of all insurers before finalising one. Irdai has released the claims payment details of general and health insurance companies for the financial year 2022-23.

While buying, renewing, or porting a health insurance policy, the first question that comes to our mind is how the insurance company settles claims. The claim settlement record of a general or a health insurance company gives us a rough idea about how many claims it pays out during a financial year as a percentage of the total number of claims it gets.

The Insurance Regulatory and Development Authority of India (Irdai) recently released its annual report mentioning the claims payment details of general and health insurance companies for the financial year 2022-23. The insurance regulator has pointed out the incurred claim ratio of general and health insurers during FY 2022-23, instead of the claim settlement ratio like the previous years.

Health insurance: Difference between claim settlement ratio and incurred claim ratio

As a policyholder, you should not get confused between the two terms. The claim settlement ratio is the percentage of the total claims paid by the insurance company in a particular period. So, if the claim settlement ratio of an insurance company is 92%, it means that out of 100 claims filed, 92 claims are settled within the given timeline.

The incurred claim ratio, on the other hand, is the percentage of the total claim amount paid to the total premium collected in a given time. For instance, the incurred claim ratio of an insurance company is 90%. Here, for every Rs 100 earned as a premium, Rs 90 is spent on the claims by the insurance company in the given year.

A look at IRDAI data on the incurred claim ratio of insurance companies in 2024

The incurred claim ratio of an insurance company helps you to gauge how the company, especially the health insurer, pays claims. While a very low incurred claim ratio suggests that the company is very conservative in honoring claims, but even a very high ratio for long period is not considered good as it will make the running of the company unviable and hence, works against the interest of the policyholders.

During 2022-23, insurers have settled about 86% of the total number of claims registered in their books till March 31, 2023, as per the data shared by the insurance regulator. The insurance companies have repudiated about 8% of them and the remaining 6% were pending settlement as of March 31, 2023.

The net incurred claims under the health insurance business of general and health insurers stood at Rs 64,631 crore in 2022-23, which is an increase of about 2% from the previous year in terms of value of total claim. However, when it comes to incurred claim ratio, there is a decrease in the net incurred claims ratio of the health business from 109% in 2021-22 to 89% in 2022-23. This decrease is witnessed across all classes/sectors of the health insurance business. The higher ratio during 2021-22 could be attributed to higher claims due to covid 19 related hospitalisations which fell significantly in 2022-23.

During 2022-23, general and health insurers have settled 2.36 crore health insurance claims and paid Rs 70,930 crore towards the settlement of health insurance claims that includes claim payment by reinsurance companies as well. The average amount paid per claim was Rs 30,087. In terms of the number of claims settled, 75% of the claims were settled through TPAs and the remaining 25% of the claims were settled through the in-house mechanism.

In terms of the mode of settlement of claims, 56% of the total number of claims were settled through cashless mode and another 42% through reimbursement mode. Insurers have settled two per cent of their claims amount through "both cashless and reimbursement mode".

Maharashtra, Karnataka, Tamil Nadu, Gujarat, and Delhi contributed about 64% of the total health insurance premium in 2022-23, while rest of the states and Union Territories have contributed the remaining 36%.

Latest incurred claim ratio of general, health insurance companies in India

Buying a health insurance cover? How to use incurred claim ratio metrics

The incurred claim ratio (ICR) should neither be too high, nor too low. If it is too high, say 110%, it means that the insurance company pays more in claims than the premium it collects. It signals potential financial challenges the company may face in recent years.

"An incurred claim ratio between 80-100% is considered reasonable, indicating a balance between premiums collected and claims paid. A ratio below 60% may suggest conservative underwriting, while below 100% generally indicates profitability," says Rakesh Goyal, Director, Probus Insurance Broker.

ICR of 50% or below may indicate an extreme scenario where the insurer is not operationally profitable and is incurring claims to the tune of Rs 50 for every Rs 100 of collected premium amount, says Abhishek Kumar, a SEBI-registered RIA. "A low ICR indicates that either the insurer is underwriting its policy well or that it is rejecting a lot of claims. The former shows better management whereas the latter shows poor claims approval," he adds.

"The ideal incurred claim ratio for an insurer depends on various factors, but generally, a lower ratio (ideally below 100%) suggests efficient claims management and sustainable business practices. However, sometimes extremely low ratios could imply inadequate coverage or reluctance to settle valid claims," Goyal adds.