What is Incurred Claim Ratio?

All of us understand the importance of coverage under health insurance policies. As the number of people availing such policies increases, insurance companies have begun to increase their offerings to attract more customers and retain existing ones.

Increased benefits, newer features, and specialized plans have transformed the industry. The higher number of available options allows individuals to choose plans that best suit their personal needs.

Professional experts advise policy buyers to consider a few parameters in order to compare mediclaim policy. One such consideration is the incurred claim ratio. In simple terms, this ratio is a calculation of the net settled claims when compared to the net collected premiums during a year.

Importance of the Ratio

A higher claim ratio bodes well for policyholders, as it signifies that the insurance company successfully meets the various claims made by its customers. This is also beneficial for the service provider, as it generates higher trust levels among potential buyers.

However, a higher ratio signifies lower profitability for the insurer. The insurance company earns lower margins because a higher percent of the premiums is used for settling claims. An incurred ratio exceeding 100 percent implies the company is using reserves to pay the claims, which can be detrimental in the longer term.

Factors to be Considered

The incurred claims ratio is a good measure for the performance of an insurance provider. However, it does not provide the larger picture and analyzing certain other factors will be more beneficial.

·         Time taken for settlement – The ratio measures the settled claims against the total premium collection. It is possible that even if the ratio is high, the time taken for the actual settlement may be lengthy, spanning several months. Moreover, the claims procedure may be complex and tedious for customers.

·         Initial lower earnings – Start-up insurance providers may not earn higher premiums during their initial years of operation. Moreover, the claims made during this period may also be higher and the ratio could therefore be over 100 percent. However, analyzing and interpreting the ratio of just the initial operative years would result in what may be an inaccurate perception of the company as being loss-making.

As a policyholder, it is important for you to understand ‘what is claim ratio’, as this will put you in a better position to decide on a suitable insurance provider. After all, your insurer is just as big a consideration as the specific policy you choose.