How to Determine the Health Insurance Incurred Claim Ratio

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The benchmark for evaluating the performance of an insurance firm is the Incurred Claim Ratio (ICR). 

The ICR measures how much of a company’s net premiums were collected during a fiscal year paid out in claims. It shows how quickly claims are settled by an insurance provider.

Once a year, the IRDAI releases data on the ICR for all businesses. Moreover, the Incurred Claims Ratio for Indian health insurance providers is made public by the IRDAI, or the Insurance Regulatory and Development Authority of India.

This blog post will explain what ICR is, how it’s calculated in a health insurance plan, why it’s important, what it means, and what to keep in mind when doing the math.

The ratio of net premiums received by an insurance provider to net claims paid out over the course of a financial year is known as the “incurred claim ratio,” or ICR, in its full form.

The ICR offers a thorough analysis of the company’s financial status.

The ICR equation is-

The yearly incurred claim ratio is (Net Claims Incurred / Net Premiums Collected) multiplied by 100.

How to Calculate Incurred Claim Ratio?

The total number of claims paid out is divided by the premiums collected over the course of a given financial year to get the ICR.

Let’s look at an example first to better understand the ICR calculation using the formula described above.


Let’s say an insurance company had a certain financial year.

  • Receives ₹10 Lakhs in Premiums and;
  • Spends ₹9 Lakhs on Resolving Claims.

Thus, using the formula:

ICR = (₹9 Lakhs/₹10 Lakhs) x 100

As a result, the company’s ICR for that particular year will be 90%.

Importance of the Incurred Claim Ratio

The ICR may be used to evaluate the financial health of an insurance firm.

This percentage demonstrates the health insurance provider’s capacity to manage claims brought against them.

The ratio signals bad financial health for the firm. In order to get back on track, they may raise the premium, change the product’s qualities, and maintain rigorous screening procedures.

In other words, an ICR is essential because the ratio of health insurance claims is used to assess how well the insurance company is performing.

By assessing the proportion of ICRs, it is possible to determine how rapidly health insurance resolves claims made by insured clients. In light of that, one can choose to invest in the insurance company.

Things to Consider While Calculating Incurred Claim Ratio

Before deciding to purchase coverage, think about a few other factors when assessing an insurance company’s ICR. Which are:

  • Time for Claim Settlement

It would be great to find out how quickly the selected firm settles claims. Even when the insurer has a high ICR, it can take more than six months to complete the claim. It is not the best circumstance.

  • New Participants

As the incurred claim ratio is a ratio, a low denominator will provide a large quotient number. If a new insurance provider in the market has collected fewer premiums in the early years, it can be an indication of a comparatively higher ICR.

Nonetheless, they could have seen a lot of claims at the beginning, so there is no need to be concerned.

  • Insurance Product Types

Health, life, and vehicle insurance are just a few of the products that an insurance company will provide. The total claim ratio will be represented by the average of these.

What Does Incurred Claim Ratio Indicate?

The ICR of an insurance company primarily examines the stability of the company’s finances. It also demonstrates the insurer’s ability to settle disputes.

Read on to discover what the various percentages pertaining to the health insurance industry’s financial soundness signify.

  • If The ICR is More Than 100%

In an insurance company’s ICR, the financial stability of the company is largely covered. It demonstrates the insurer’s ability to settle disputes as well.

The different percentages concerning the health insurance industry’s financial soundness are represented in the following paragraphs.

  • If the ICR is Less Than 50%

Such a scenario can be fruitless for the policyholders but profitable for the insurance company.

An ICR of less than 50% means that the corporation has far more premium than it has in claims-paying costs. Payment of the claim amount to policyholders must be transparent.

If the ICR is low, the policy is likely to have more exclusions and be more expensive than average, which will lead to the denial of the policyholders’ claims.

  • If the ICR is More Than 50% & Less Than 100%

The chance of filling this position is greatest.

A similar arrangement is advantageous to both policyholders and the health insurance industry.

This shows that the insurance policy is reasonably priced and has the required features. The exclusions are not, however, unduly strict.

The claim settlement process is well-regarded by policyholders, and it is sufficiently transparent. The ICR should thus range between 70% and 90%.


While choosing a health insurance provider, several criteria should be taken into account. One of the factors taken into account when assessing a company’s financial sustainability is the proportion of incurred claims.

Customers should consider the insurance provider’s standing in the marketplace, how quickly claims are handled, and other factors when selecting the best insurance.

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