Recently, a customer approached Ditto. Before purchasing a health insurance policy from us, they already had one but weren’t happy with the old insurer’s claim settlement process.
This is when they booked a call with us, and we reassured them that purchasing a good health insurance plan alone is not important, but purchasing one from a good insurer is also equally important.
And two important metrics to look for are the Claim Settlement Ratio (CSR) and the Incurred Claim Ratio (ICR).
These metrics indicate an insurance company's reliability and financial health, helping you make an informed decision as a potential policyholder.
But what exactly do these ratios mean, and how do they differ from each other? Find out by reading the entire article!
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What is Claim Settlement Ratio (CSR) in Health Insurance?
The Claim Settlement Ratio (CSR) indicates the percentage of claims settled by an insurance company out of the total claims received during a financial year.
Here is how CSR is calculated:
Claim Settlement Ratio = (Total no. of Claims Approved / Total no. of Claims Received) x 100
For instance, if an insurer receives 100 claims annually and settles 95 of them, the CSR would be 95%. This ratio is a straightforward indicator of an insurer's reliability in settling claims that policyholders have raised.
A higher CSR suggests that the insurer is efficient in processing and settling claims, which is important for potential policyholders who want to ensure their claims will be settled.
It’s important to note that while a high CSR is generally positive, it should not exceed 100%. This means that the insurer is paying more in claims than it is collecting in premiums. You should consider it alongside other factors, such as the speed of settlement and the complexity of the claims settled.
Things to keep in mind about the Claim Settlement Ratio (CSR) of a Health Insurance Company
- Determines insurer’s credibility: A higher CSR indicates that the insurer is reliable in processing and settling claims.
- Claim settlement consistency: A consistent CSR over multiple years shows that the insurer maintains reliable claim settlement practices.
- Does not reflect the settlement speed: CSR does not indicate how quickly the insurers settle claims, which can be crucial in emergencies.
- Does not show the amount settled: CSR only reflects the number of claims settled, not the total amount, which could mask financial stability issues.
What is the Incurred Claim Ratio (ICR) in Health Insurance?
The Incurred Claim Ratio (ICR) measures the total amount of claims paid by the insurance company against the total premium collected during a financial year.
Here is how ICR is calculated:
Incurred Claim Ratio = (The total value of claims settled by an insurer / The total value of premiums collected by the insurance company) x 100
For example, if an insurer collects ₹100 crore in premiums and pays out ₹80 crore in claims, the ICR would be 80%.
ICR provides insight into an insurance company's financial health and sustainability. A very low ICR could indicate that the insurer is collecting more premiums than it pays out in claims, which might suggest a focus on profitability rather than customer service.
On the other hand, an extremely high ICR could imply that the insurer needs to pay out more in claims, which might not be sustainable in the long run.
Things to keep in mind about the Incurred Claim Ratio (ICR) of a Health Insurance Company
- Financial Stability: ICR shows the insurer's financial health and ability to pay out claims in the long run.
- Does not reflect the time taken to settle claims: Similar to CSR, ICR does not show how quickly claims are resolved, which is an important factor for policyholders.
What Different Incurred Claim Ratios in Health Insurance means for you:
| ICR Value | Less than 50% | 50-70% | 70-100% | Greater than 100% |
|---|---|---|---|---|
| What it means for you | Indicates that the insurer collects significantly more premiums than it pays out in claims, which may suggest profitability at the expense of claim settlement. | This range is ideal, suggesting that the insurer balances financial health and settles a fair share of claims. | This range indicates that the insurer pays out a significant portion of the premiums it collects in claims annually. While it shows a strong commitment to settling claims, it also suggests that the insurer might have less flexibility in managing its finances. | This indicates that the insurer is paying out more in claims than it collects in premiums. This is unsustainable and might lead to higher premiums or lower claim settlements in the future. |
What is the difference between Claim Settlement Ratio & Incurred Claim Ratio?
While both CSR and ICR are important, they serve different purposes and provide different insights into an insurance company’s operations:
| Basis | Claim Settlement Ratio (CSR) | Incurred Claim Ratio (ICR) |
|---|---|---|
| Focus | CSR measures the number of claims settled against the total claims received, offering insight into an insurer’s reliability in handling claims. | ICR measures the financial aspect, comparing the total claims paid to the total premiums collected, providing insight into the company’s financial health. |
| Perspective | CSR is more policyholder-centric, as it directly relates to how likely an insurer is to settle claims. | ICR is more company-centric, showing how efficiently the company manages its finances. |
| Implications | A high CSR suggests that the insurer is reliable in settling claims, which is crucial for policyholders. | A balanced ICR indicates that the insurer is financially stable, ensuring it can continue paying out claims without facing financial difficulties. |
What is the Ideal Claim Settlement Ratio and Incurred Claim Ratio (CSR & ICR)?
The ideal CSR (Claim Settlement Ratio) for a health insurance company should be between 97% and 100%. This indicates that the insurer settles a majority of claims received. A CSR of above 100% is not ideal, as it suggests that the insurer is not scrutinising claims carefully, leading to higher premiums or the insurer going bankrupt in the future.
When it comes to ICR (Incurred Claim Ratio), the ideal range is between 50% and 70%. An ICR in this range suggests that the insurer is paying out a significant portion of the premiums collected in claims but is still retaining enough to remain financially stable and sustainable.
What are the best health insurance companies with the highest CSR and ICR for 2024?
| Insurer | CSR | ICR |
|---|---|---|
| HDFC ERGO | 98% | 85% |
| Care | 91% | 58% |
| Aditya Birla | 93% | 61% |
| Niva Bupa | 91% | 57% |
| Bajaj Allianz | 94% | 81% |
| Industry Average | 91% | 83% |
| Ideal Metric | >= 97% | 50%-70% |
Note: This is a 3-year average from 2021-2024. An average figure evens out the windfalls.
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Conclusion
Understanding the Claim Settlement Ratio (CSR) and Incurred Claim Ratio (ICR) is important when choosing a health insurance provider. While CSR gives you an idea of how likely your insurer is to settle a claim, ICR provides insight into the insurer’s financial stability.
Together, these metrics offer a broad view of an insurance company’s performance, helping you make an informed decision that best meets your healthcare needs. Always consider both ratios, along with other factors, to ensure you select an insurer that offers both reliability and value for money.
Understanding these terms can significantly impact your choice of insurance provider, ensuring you select a company that offers comprehensive coverage and delivers on its promises.If you still need help in choosing a good health insurance policy from a reputed insurer, feel free to book a call with IRDAI-certified insurance advisor.
